Telecoms may be growth driver for Straits Energy

PETALING JAYA: Straits Energy Resources Bhd’s diversification into the telecommunications segment could turn out to be a significant growth driver for the group in the future, according to TA Research.

Following a recent meeting with the company’s management, TA Research expects the earnings potential to be huge, evidenced by the group’s ability to secure an order book of about RM160mil.

Meanwhile, it said the group’s core oil bunkering business is a beneficiary of the escalation in the Red Sea crisis and should remain stable in coming years.

Oil bunkering accounted for the bulk of the group’s revenue in the financial year 2022 (FY22).

Straits Energy mainly operates in Malaysia.

In March last year, Straits Energy’s shareholders approved its proposal to diversify into the telecommunications and network-services business. The main reason for the proposed diversification is because of the low profit margin from the oil bunkering business.

The telecommunications segment involves the provision of end-to-end solutions in telecommunications, from infrastructure, networking, maintenance, software, hardware and related services to organisations.

According to TA Research, the segment is an asset-light business as the company will mainly come up with the solutions and engage with contractors if necessary.

The group recently secured a RM15.2mil subcontract to install, test and commission underground cables and accessories for Tenaga Nasional Bhd.

Other projects the group secured include a RM40.7mil subcontract to implement building, electrical, information and communications technology work and smart-building systems for the Universiti Kebangsaan Malaysia Medical Centre.

“We expect the segment to grow exponentially from FY24 onwards, leveraging on the rollout of 4G/5G nationwide and the increasing adoption of digitalisalisation,” added TA Research.

Being a new venture, TA Research contends that execution is a concern.

However, it noted that Straits Energy has appointed Sunny Ho Khin Choy, a veteran with 30 years of experience in the telecommunications and digital-transformation space to lead the group’s telecommunications arm. Ho’s last posting before this was in Digital Nasional Bhd.

“The group currently has an order book of about RM160mil, a testament of the confidence in the group’s ability to deliver. This is a significant growth from the RM2.6mil the group secured during its first year of operations in FY22,” said the research firm.

Apart from this, the group is looking at expanding into data centres powered by artificial intelligence and is talking to a potential partner, where Straits Energy will provide IT solutions for the data centres, said TA Research.

As for oil bunkering, profitability mainly pivots on the volume of fuels sold. Following the escalation of tension in the Red Sea, many shipping firms have begun avoiding the Red Sea and are instead opting for a lengthy detour around the Cape of Good Hope.

According to some estimates, this requires an additional US$1mil or about RM4.8mil worth of extra fuel for a round trip between Asia and Northern Europe.

It noted that the overall sales of marine fuel in Singapore has surged 12% year-on-year in January 2024.

The higher demand for marine fuel bodes well for the profitability of Straits Energy’s oil bunkering segment.

TA Research has a value of 20 sen per share on the stock but did not rate it.