*This article was based on the excerpt of an article from The Star. I have only added my opinion on it.

Link to article: https://www.thestar.com.my/business/business-news/2021/04/26/techfast-aims-big-in-oil-trading-and-bunkering

With the gradual recovery of global trading activities, most people are focused on how manufacturers or wholesaler could attain abnormal profit. With that mentality, however, one might miss out on a huge investment opportunity.

From the surfacing of COVID-19 to date, we know that generally individual item prices had increased due to shortage of supply from previous reduction of manufacturing capacities. This would create an artificial demand for the short term and drive-up prices, or what we called “backlog orders”. But do you notice that no matter what items are being traded, you would need LOGISTICS?

Being a citizen in Malaysia, we can see that not all borders are reopened, and shipping still proves to be rather difficult. This had drove the demand for forwarding, shipping, dry bulking and so forth to increase significantly. Take Baltic Dry Index as an example, it has already gone up in price for 314.88% to date.

Should we chase after logistics or dry bulking companies now? Yes, you can do so. But as a value investor, I prefer something that is more subtle, or what we called “Hidden Champion” in nature to invest in. And this company had just ventured into the backbone business of all maritime activities, or sea-shipping activities as a layman term – the oil bunkering business.

“Executive director Vincent Tan Wye Chuan told StarBiz that this is a timely opportunity for the company to enter the oil bunkering sector on the back of renewed optimism due to worldwide rollouts of Covid-19 vaccination programmes.”

“As bunker services play a critical role in supporting oil and gas operations, Techfast is set to benefit from increased oil and gas activities, ” Tan noted.

From the statement given by the Executive Director of TECFAST (0084), we could simply tell that as the shipping activities as well as oil & gas activities recovers, oil bunkering would stand to benefit from it. The company had officially started to delivery 10,000 tonnes of Marine Gas Oil (MGO) to their client – Wise Marine on this month. The value of the delivery is approximately 20 million in ringgit.

To recap, the total contract value is close to 2.2 billion in ringgit, hence the 20 million is just – in my opinion, a “test run” for the company. There is still huge potential for TECFAST to tap in.

“In March this year, Techfast completed a private placement exercise, raising total proceeds of RM28.2mil, for the working capital needs of the group’s oil bunkering business as well as the acquisition of a 35% stake in CCK Petroleum Sdn Bhd, a fuel supplier with activities at major transiting ports in Malaysia and a wide clientele in the maritime industry.

With the acquisition, Tan said the group is able to strengthen its presence in the local bunkering industry.

There is also a profit guarantee of RM5mil per year from CCK Petroleum for a period of two years for financial year 2021 (FY21) and FY22. With the 35% stake, this translates to a net profit contribution of RM1.75mil per year to Techfast.”

 

As you could tell, TECFAST is serious in getting more profit for the company via its business venture to the oil bunkering line. The baseline of which TECFAST could at least receive a 1.75 million in ringgit in net profit despite only had 35% stakes – to me, is impressive. This had not factored in the 2.2 billion and 540 million in ringgit worth of contract the company had gotten on hand.

Moreover, the company had also proposed a fund-raising activity of rights issue with free warrants, which could potentially hook TECFAST up with 115.3 million in ringgit worth of cash. Should the company achieve the said amount of capital raising, the management also had plans to acquire their own bunker vessels and expand into the Liquefied Natural Gas (LNG) bunkering space – which is important to reduce carbon footprint to adhere to the new IMO 2020 regulation.

“We are also planning to acquire our own bunker vessels to further enhance our profit margins. As part of our growth strategies, we are eyeing expansion into international ports such as in Singapore and Hong Kong.

“On top of that, we endeavour to expand into the liquefied natural gas (LNG) bunkering space, after establishing a market for traditional oil-based fuels. There is great potential to be reaped as new vessels opt for dual-fuelled engines that can be powered by LNG to mitigate carbon footprint, ” Tan said.

 

To conclude, one should really look behind what is happening behind the “booming” of a sector. Oil bunkering will remain relevant longer than the temporary boom of BDI prices – just refer to 2007 – 2009!