SJ SECURITIES SDN BHD

standards. Their main competitor for this service is Favelle Favco, the other company with an
API 2C license. With Favelle Favco holding 85% market share of crane fabrication, we do not
expect this activity to be a significant revenue contributor.

Lifting solutions for work over projects – The group is one of the few companies that are
involved with the reviving of old or abandoned oil platforms in Peninsular Malaysia, Sabah and
Sarawak. With the absence of competition, coupled with a high gross margin, this activity
holds great future prospects for the company.

Disclaimer

The information contained in this report is based on data obtained from sources believed to be reliable. However, the
accuracy, adequacy, reliability or completeness of the information provided herein is not guaranteed and opinions are
subject to change without notice. This report has been prepared for information purposes only and should not be
construed as a solicitation for contracts. Any recommendation made does not take into account the specific investment
objectives and any particular needs of investors. We accept no liability for any direct or indirect loss arising from the
use of this document. We, our associates, directors or employees may have an interest in the securities and/or
companies mentioned herein.

Stock rating definitions

Buy – The stock is expected to perform positively. Expected return including both capital appreciation and dividends is
expected to exceed 15% over 12 months.

Hold – The stock is expected to stay sidelined. Expected return including both capital appreciation and dividends is
expected to range between negative 5% to positive 15% over 12 months.

Sell – The stock is expected to perform negatively. Expected return including both capital appreciation and dividends is
expected to be negative 5% or lower over 12 months.

Not Rated – The stock is not under research coverage and the reports serves for purely informational purposes only.

Trading Buy – The stock is expected to be volatile while providing for near term positive trading opportunities. This is
under the high risk category with near term catalysts.

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 SJ SECURITIES SDN BHD

Corporate Structure

Handal Resources Berhad

(Holding Company)

100%

Handal Offshore Services Sdn Bhd

(Operating Subsidiary)

Source: Company

Business Activities

Handal Resources Berhad (HRB) was incorporated in 2008 to seek listing on the Second Board
of Bursa Malaysia for the group. The group comprises of HRB, the holding company and
Handal Offshore Services Sdn Bhd (HOSSB), HRB’s 100% owned subsidiary. The group started
out in the year 1988 as Handal Engineering Sdn Bhd (HESB) and was restructured in the year
2001 to become HOSSB. The group’s core activities are as follows:-

Provision of overhaul and Maintenance Services – The group is involved in many aspects
of reconditioning and overhauling of offshore pedestal cranes, which include crane
reconditioning, operation and management, crane inspections, consultation services, and
customer support data.

Supply of manpower & parts – The group provides fully-trained and experienced design,
mechanical structural and electrical engineers, crane operators and technicians for the O&G
companies. They also supply components and spare parts for the offshore pedestal cranes.
They are the distributor and service centre for Braden winches for this region.

API 2C offshore crane rental – The group possesses fourteen API 2C compliant modular
offshore pedestal cranes under their crane rental division. The cranes are rented out to clients
who are having their permanent cranes serviced by Handal Resources Berhad. This adds an
extra edge to their integrated crane services contract as they are one of a few companies that
are providing this service with no known competition.

Fabrication of API 2C new offshore pedestal cranes and API 2C approved yard – The
group is one of only two companies in Malaysia which is licensed under the American
Petroleum Institute (API) that manufactures offshore pedestal cranes. They are involved in the
design and construction of offshore pedestal cranes that are in accordance with API 2C

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 SJ SECURITIES SDN BHD

Peers Comparison
Stock Market Cap PER PER
Description exchange (RM mn) current forward
Dialog Group Bhd Bursa 1,639.3 20.7 18.4
Kencana Petroleum Bhd Bursa 1,670.5 19.5 13.3
Perisai Petroleum Teknologi Bursa 420.6 22.7 6.6
Sapuracrest Petroleum Bhd Bursa 2,109.3 16.4 15.2
Uzma Bhd Bursa 130.4 10.9 12.5
Wah Seong Corp Bhd Bursa 1,344.8 13.1 12.5
Petra Energy Bhd Bursa 354.9 8.3 7.6
Petra Perdana Bhd Bursa 845.2 9.7 10.1
KNM Group Berhad Bursa 3,461.5 9.8 9.6
Tanjung Offshore Bhd Bursa 341.2 8.8 8.4
Eastern Pacific Indus Corp Bursa 270.8 9.4 8.4
Alam Maritim Resources Bhd Bursa 817.8 10.3 8.8
Saag Consolidated M Bhd Bursa 250.7 8.0 9.0
Scomi Group Berhad Bursa 696.6 6.6 9.6
Deleum Berhad Bursa 158.0 6.8 5.9
Favelle Favco Bhd Bursa 164.3 7.5 6.9

Average 917.3 11.8 10.2

Source: Bloomberg

Length of Relationship

16
14 14
14
12
10
8
Years

8
6
4 2
2
0
Exxon Mobil PETRONAS Talisman Sarku
Carigali Engineering
Services S/B

Graph 1.0: Length of relationship of key clients

Source: Company

3
 SJ SECURITIES SDN BHD

Expanding throughout the region. The group plans to penetrate Thailand, Indonesia and
Vietnam within the next 5 years. Though there are no concrete plans yet, the group is in a
healthy cash position to grow through acquisitions if they so choose. As at FYE Dec 21 2008,
the group has around RM24 mil in short term fixed deposits. With their IPO expected to
generate another RM13 mil in cash, the group can choose to acquire O&G assets in the said
ASEAN countries.

Key risks. (1)The group’s main risk is from the lack of diversification in their client base. 78%
of their total revenue for FYE31 December 2008 came from only three companies, namely
ExxonMobil, Petronas Carigali, and Sarku Engineering Services Sdn Bhd. However, the group
does have a longstanding relationship with two of these 3 big clients as shown in graph 1.0
below. (2) We do not have high hopes on the group’s crane fabricating activities as their
competitor is Favelle Favco, who currently have the lions share of the market (85%). Despite
being the other API2C licensed holder, we do not expect crane fabrication to be a major
contributor to the groups overall revenue or their bottom line as it’s margins are significantly
lower as compared to the other two activities. (3) Other risks are common operating risks that
come with the industry such as licensing, foreign exchange risk and delay in delivery of
services due to external factors such as severe weather conditions.

Recommendation. We have a buy recommendation with a target price of RM0.91. Our target
price is based on a FY2010F EPS of RM0.15 and a forward PER of 6.0x. The forward PER is
based on a 40% discount to the forward peer PER of 10.2x due to the group’s newly listed
status and substantially lower market capitalization.

Financial Highlights

FYE Dec 31st Units 2006 2007 2008 2009F 2010F

Revenue RM mn 39.22 55.60 60.58 68.84 88.84
Cost of Sales RM mn (24.33) (29.83) (35.26) (40.46) (54.75)
Gross Profit RM mn 14.88 25.77 25.32 28.38 34.09
Other Income RM mn 0.47 0.97 1.46 1.25 1.52
Administrative Expenses RM mn (4.98) (9.64) (7.54) (9.40) (10.00)
Other Expenses RM mn (2.74) (3.87) (3.58) (4.25) (4.80)
Profit from Operations RM mn 7.62 13.23 15.65 15.98 20.81
Finance Costs RM mn (0.61) (1.12) (1.89) (1.63) (2.10)
Profit Before Tax RM mn 7.01 12.11 13.77 14.35 18.71
Taxation RM mn (2.17) (3.40) (4.52) (3.57) (5.05)
Net Profit (Att to Shareholders) RM mn 4.85 8.71 9.25 10.78 13.66
EPS sen 0.07 0.12 0.13 0.12 0.15

Growth % 2006 2007 2008 2008 2010F

Revenue % na 41.8 9.0 13.6 29.1
Profit Before Tax % na 72.7 13.7 4.2 30.4
Net Profit/Loss % na 79.8 6.1 16.6 26.7

Margins % 2006 2007 2008 2008 2010F

Gross Margin % 37.9 46.3 41.8 41.2 38.4
Net Margin % 12.4 15.7 15.3 15.7 15.4

Ratios 2006 2007 2008 2008 2010F

PER x 10.62 5.91 5.57 6.01 4.74

2
Initial Public Offering
SJ Securities Sdn. Bhd.
30 July 2009 PP7084/11/2006
Strictly for internal circulation only

Handal Resources Limited Buy

Integrated offshore crane services Fair Value
RM0.91 (+26.4%)

Stock Data Investment Highlights

Offer Price (RM) 0.72
Bloomberg Ticker Na Handal Resources Limited is an offshore crane
Listing Second Board
manufacturing and servicing company which operates out
Paid-up Cap (RM mn) 32.1
of Kemaman Supply Base, Terengganu. The group would
Par value (RM) 0.50 be listed on the second board with 6.0mil shares offered
Major Shareholders to the Malaysian public, 4.0 mil shares offered to
Dato’ Mohsin Abdul company personnel and 8.5mil shares placed privately to
Halim 33.2% identified investors. The issue price is at RM0.72/share,
Zahari bin Hamzah 35.2% which is valued at 4.74x 2010F EPS.
th
Tentative listing date 30 July 2009
A Niche Market. Handal Resources Limited’s core
activity and main contributor to their revenue are the
Utilisation of proceeds integrated crane services contracts. The group provides
Applications of crane overhauling and maintenance services of offshore
proceeds (RM ‘000) cranes, specializing in the O&G industry. This activity
Business includes the supply of manpower and parts for the
Expansion 8,500
overhauling process. While the cranes are being
Purposes
overhauled, Handal also has 14 cranes at its disposal for
Working Capital 3,420 their clients to rent and is the only O&G services company
Estimated listing to do that. The group has a 70% market share of crane
1,400
expenses services contracts, based on the total value of contracts
Total 13,320 approved.

Fabricating of cranes with an API2C standard.

Handal Resources Limited is one of two companies in
Our reports are available for download Malaysia with an API (American Petroleum Institute)
on SJenie website as stated below. license to manufacture offshore pedestal cranes. The
other company being Favelle Favco. Handal has so far
SJ Securities Sdn Bhd manufactured 14 API 2C cranes with zero defects on 14
A Participating Organisation of consecutive projects.
Bursa Malaysia Securities Bhd
The one and only in Malaysia. In 2006, the group
www.sjsec.com.my
ventured into providing clients with lifting solutions for
Tel: 603-5634 0202 workover projects. This particular activity revives old or
Fax: 603-56376811 abandoned oil platforms located around Peninsular
Malaysia, Sabah and Sarawak. Handal is the only
company in Malaysia to provide such services. Add that
fact to an average gross margin of circa 60% (2007:
54%. 2008: 71%), and you have a group with bright
future prospects.

Increased production capacity. The group is building a

new 10 acres crane construction yard in Teluk Kalong,
Kemaman. The new facility is expected to be complete by
2Q2009. It will have a manufacturing/overhauling
capacity of 30 cranes per annum vs. 10 cranes per
annum at their current 3 acre construction yard. Once it
is complete, the total crane manufacturing/overhauling
capacity for the group would be 40 cranes pa.