Risk Factors

NOTWITHSTANDING THE PROSPECTS OF OUR GROUP AS OUTLINED IN THIS PROSPECTUS, YOU SHOULD CAREFULL Y CONSIDER THE FOLLOWING RISK FACTORS (WHICH MA Y NOT BE EXHAUSTIVE) THAT MAY HAVE A SIGNIFICANT IMPACT ON THE FUTURE PERFORMANCE OF OUR GROUP. YOU SHOULD CAREFULLY CONSIDER THE RISKS AND INVESTMENT CONSIDERATIONS SET OUT BELOW ALONG WITH OTHER INFORMATION CONTAINED HEREIN IN THIS PROSPECTUS BEFORE YOU MAKE YOUR INVESTMENT DECISION. IF YOU ARE IN ANY DOUBT AS TO THE INFORMATION CONTAINED IN THIS SECTION, YOU SHOULD CONSULT YOUR STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT OR OTHER PROFESSIONAL ADVISER. THE RISKS AND INVESTMENT CONSIDERATIONS SET OUT BELOW ARE NOT AN EXHAUSTIVE LIST OF THE CHALLENGES THA T WE CURRENTLY FACE OR THA T MA Y DEVELOP IN THE FUTURE. ADDITIONAL RISKS WHETHER KNOWN OR UNKNOWN, MA Y HAVE A MA TERIAL ADVERSE EFFECT ON THE FINANCIAL PERFORMANCE OF OUR GROUP. RISKS RELATING TO THE BUSINESS AND OPERATIONS OF OUR GROUP 4.1.1 Dependence on the domestic oil and gas industry Our Group provides integrated offshore crane maintenance services to the domestic oil and gas industry. The prospects of the local offshore pedestal crane services and manufacturing industry are significantly influenced by the spending of oil and gas majors on upstream exploration, development and production activities. New discoveries in the offshore oil and gas fields have been the engine of growth in the offshore pedestal cranes services industry. As oil and gas companies go deepwater for oil and gas production, cranes have to keep up with the needs of exploration and production. The local oil and gas industry is presently still active with new and existing PSC operators increasing activities through deepwater exploration and development activities, marginal field developments and enhanced recovery campaigns. Thus it is expected that the local oil and gas industry will continue to be fairly active and grow into the foreseeable future. In addition, our Group has recently emerged as an engineering lifting solutions provider for workover and enhanced recovery projects. Workover projects involve reViving old and abandoned as well as under-maintained oil platforms. Our Board believes that this trend will continue given the introduction of new technologies along with the prevailing oil prices which make reviving marginal producing platforms commercially viable. Further as mentioned in Section 5.9.1 of this Prospectus, our Group is looking at expanding our current operations abroad to mitigate against any dependence on the domestic oil and gas industry.
4.1.2 Dependence on operating licences and approvals In order to participate in the oil and gas industry in Malaysia, all the service providers are required to obtain the necessary licenses and/or registrations with PETRONAS and the other relevant authorities. Such licences and registrations are only valid for a stipulated timeframe only. The said licences and registrations are all renewable, sUbject to the compliance with the relevant conditions and requirements imposed by PETRONAS and other relevant authorities. PETRONAS is the main licensor governing our operations in the oil and gas industry in Malaysia. However, the requirements set out by PETRONAS and the other relevant authorities may be sUbject to changes in the future. Any fundamental changes to PETRONAS’ policy with regards to the regulations governing the oil and gas industry may have an adverse or favourable impact on the operations of our Group. There is no assurance that our business may not be materially affected by these changes. 4. RISK FACTORS (Cont’d) Although our Group has not experienced any difficulty in maintaining the relevant licenses and registrations in the past and do not foresee any potential issues arising from our renewal of our existing licences and registrations, no assurance can be given that our licences and registrations will be renewed or renewed within the anticipated timeframe or that new terms and conditions will not be imposed by the relevant authorities upon renewal. In addition, no assurance can be given that any future legislative or regulatory policy changes will not adversely affect the operations of our Group. Please refer to Section 5.8.12 of this Prospectus for a list of our licences, registrations and permits. 4.1.3 Dependence on major customers Our Group is currently operating in a highly specialised and niche industry for which demand for our Group’s services is derived mainly from a few major oil and gas operators. We have long term maintenance and service contracts with PETRONAS Carigali, ExxonMobii and Talisman. As disclosed under Section 5.8.17 of this Prospectus, these customers accounted for approximately 65.82% of our Group’s total revenue for the FYE 31 December 2008. Although these service contracts provide us with revenue and earnings visibility, these contracts contain provisions which allow the customers to unilaterally terminate the contract if there is any non-performance or lack of performance of the service contracts on our part. As such, no assurance can be given that these service contracts will be maintained or that the loss of anyone or more of these major customers or contracts would not adversely impact our Group’s operating results. However, our Group’s dependence on major customers and/or the risk of losing a service contract is mitigated by the following: ­(i) our Group has secured contracts from a range of oilfield operators such as PETRONAS Carigali, ExxonMobil and Talisman, thus, we are not solely reliant on anyone (1) customer. Our ability to secure long term service contracts with the above mentioned oil and gas majors is a testimony to our Group’s service quality, reputation and solid track record. The type of contracts secured are of various service categories such as provision of specialized manpower, engineering equipment, spare parts as well as other support services. Our Group is the only fUlly integrated overhaul and maintenance service provider for offshore pedestal cranes in Malaysia;
(ii) our Group’s relationship with our major customers have been established and nurtured over a period exceeding ten (10) years. This long-term business relationship implies a satisfactory and beneficial customer-supplier relationship and forms the basis of continuous business in the future;

(iii) there are an increasing number of oil and gas operators and service companies such as Murphy Oil Corp., UMW Petrodrill (Malaysia) Sdn Bhd, Petrofac Ltd, BJ Oilwell Services (Malaysia) Sdn Bhd, Conoco Philips Inc., Newfield Exploration Co., Crest Petroleum Berhad, Kencana Petroleum Berhad and Sime Darby Engineering Sdn Bhd in Malaysia. Going forward, this enables our Group to offer our services to these oilfield operators and service companies hence expanding our customer base; (iv) our Group is the sole distributor and service centre in the region for Seacrane offshore cranes and Braden Planetary crane hoists. This distributorship augurs well for our Group as it enables us to further expand our business, diversify our income base and mitigate the risk of over reliance on major customers; 4. RISK FACTORS (Cont’d) (v) our Group has made significant progress in diversifying and expanding our income source. Steps taken include focusing on growing our crane rental business and provision of services in relation to workover projects;
(vi) the local oil and gas industry is still active with new and existing PSC operators increasing their activity through deepwater exploration and development activities, marginal field development and enhanced recovery efforts. The expected growth in the local oil and gas industry is expected to provide our Group with further opportunities to expand and diversify our earnings base; and

(vii) our Group intends to expand our business in the future through acquisitions, joint ventures and strategic alliances that will complement our current and future businesses. As mentioned under Section 9.2.1 of this Prospectus, our Group is looking at expanding our current operations to East Malaysia and abroad which may include countries in the South East Asian and African regions to mitigate any over dependence on the Peninsular Malaysia market.
4.1.4 Competition Our Group faces competition from other local and foreign offshore crane service providers in the oil and gas related industry in Malaysia. However, the threat from new entrants to the industry is relatively low due to the niche market our Group operates in, high barriers to entry in terms of initial capital investment and working capital resources, technical expertise, skilled workforce and the requirements for licenses and registrations with API, PETRONAS, MITI and the MOF. Our Group is one of only two (2) API licensed companies operating in Malaysia that manufacture offshore pedestal cranes and the only company in Malaysia to provide fully integrated overhaul and maintenance services for offshore pedestal cranes. Furthermore, we have a strong track record with the major oil and gas operators such as PETRONAS Carigali and ExxonMobii since 1995. Due to the high safety standards imposed by the industry, our Group and our competitors are required to have an established and proven safety track record in successfully performing high risk works, in particular, the removal of pedestal cranes from the offshore platform. Such a requirement acts as an additional barrier to entry for potential competitors as only companies with the relevant safety track record are able to qualify and be allowed to tender/secure the works/contracts performed by our Group. We believe that any potential entrant faces an uphill task of securing crane servicing and reconditioning works since they would not have any prior track record which demonstrates their ability and competence of haVing successfully and safely removed offshore cranes from the oil platforms. To this end our Group stands out as one of the few companies in Malaysia that have won numerous safety awards in performing such high risk works. Please refer to Section 5.5 of this Prospectus for further details. Although we are confident of maintaining our competitive advantage, there can be no assurance that competitive pressures in the future will not materially affect our market share and consequently our financial results.
4.1.5 Dependence on suppliers, partners and principals Our Group is dependent on our suppliers, partners and principals for the supply of certain supporting specialised products and services. These partners and principals are internationally renowned corporations supporting the offshore crane industry and include Braden and Robway. Any severance of these relationships will have a negative impact on our Group’s ability to supply those specific supporting products and/or delay in delivering services to our customers.
4. RISK FACTORS (Cont’d) However, as some of these types of specific supporting products are available from alternative suppliers, any disruptions in supply are minimal. Although there is no assurance that our Group will be able to maintain these partners and principals, our Group currently enjoys long-standing relationships with our partners and principals, the majority of which have been dealing with our Group since our commencement of business. In addition, our Group seeks to mitigate this risk by maintaining good working relationships and ensuring obligations are fulfilled. 4.1.6 Delay in delivery of our services and cranes Our Group’s services and cranes are critical to the oil and gas industry. Any delay in the delivery of our services and cranes will result in further risks and downtime which would be costly to the customer. The timely delivery of services is dependent on many external factors which may be beyond our control such as work stoppage due to severe weather conditions and unavailability of critical crane components. Any such delays could have an adverse impact on our ability to conduct our activities and complete our contractual obligations. Based on our historical track record, we have operated under many different types of external conditions and have been able to successfully minimise and mitigate the adverse impact of such conditions on our business performance. Since the commencement of our offshore pedestal crane business, our Group has consistently delivered services and cranes on a timely basis. Our Group stands out with zero defects on all fourteen (14) new cranes delivered and zero warranty call-outs on fifty seven (57) cranes reconditioned. Notwithstanding our established track record of delivering quality service in a timely manner, there is no assurance that external factors as mentioned above would not adversely impact the performance of our business in the future.
4.1.7 Increase in prices of raw materials and foreign exchange risk The prices of raw materials, in particular imported steel, which is the main component and cost for our cranes, may be subject to movements in steel prices. At present, our Group’s steel purchases are transacted based on prices quoted in USD. Accordingly, our Group is exposed to the risk of rising raw material cost and foreign exchange fluctuations which may adversely affect our profitability especially if we are unable to pass such price increases to our customers. The Board, however, believes that the volatility of our raw material cost and foreign exchange are manageable as the supply/manufacture of our cranes are based on purchase orders and not long-term supply contracts. Raw material supplies are only procured upon receipt of purchase orders from customers. As such, the impact of the price movement of our raw materials, if any, would be minimal, since the cost of steel and spare parts would form part of the quotation to the customer. Furthermore, the manufacturing’ and fabrication of new offshore pedestal cranes only contributes 14% of our total revenue for the FYE 31 December 2008. The bulk of our Group’s revenue are derived from the long term maintenance and service contracts for which steel is not a main component and cost consideration. However, we can give no assurance thaf any significant increase in steel prices and exchange rate fluctuations will not materially and adversely affect our Group’s financial condition.

4. RISK FACTORS (Cont’d) 4.1.8 Investment activities and new ventures As disclosed in Section 5.4 of this Prospectus, our Group has purchased a new ten (10) acre yard located at the Teluk Kalong industrial area, which is located in the vicinity of our existing three (3) acre yard at the Kemaman Supply Base. The new yard is expected to be completed by the second quarter of 2009 and is primarily funded by the MTN Programme and our Group’s internally generated funds. Although our management team has carried out extensive feasibility studies and exercised due care in assessing the risks and merits of investing in the new yard, there is no assurance that we will be able to reap the expected returns from the new yard or that our operations in the new yard will run at optimum capacity or near optimum capacity. As part of our expansion plans, some of our proceeds from the Public Issue may be used to acquire companies and businesses which are complementary to our existing business. However, such future acquisitions could also divert our management’s attention to other business concerns and expose our business to unforeseen liabilities or risks associated with entering new markets or new ventures. Nevertheless, we believe that our experienced management team will exercise due care and the same prudence utilised over the years while executing its future plans. Our Group and our experienced management team will endeavour to undertake feasibility studies and due diligence on such potential acquisitions prior to undertaking the exercise.
4.1.9 Workplace safety and health matters Our Group’s operations are subject to many laws and regulations, including those relating to workplace safety and worker health. Our Group believes that our existing operations are in compliance with the relevant laws and regulations and is not aware of any workplace safety and health matters currently, individually or in aggregate, that may have a material adverse effect on our financial condition. Our Group’s commitment to workplace safety is well evidenced by our Group’s illustrious historical track record as well as the numerous safety awards received by our Group as disclosed in Section 5.5 of this Prospectus. Furthermore, our Group has mitigated some of these potential workplace safety and health liabilities by purchasing, amongst others, employees’ liability and workmen compensation insurance policies. However, the risks of workplace safety and health costs and liabilities exist in our Group’s operations, and there can be no assurance that claims for damages resulting from our Group’s operations will not have a material adverse effect on our Group’s financial condition or results of operations.
4.1.10 Borrowings and financing risk Our Group’s borrowings include term loans, bankers’ acceptance, overdraft facilities, hire purchase and MTNs. Our Group’s finance costs based on the audited accounts as at 31 December 2008 amounted to approximately RM1.89 million. As the interest charged on bank borrowings is dependent on prevailing interest rates and total outstanding loans, future fluctuations of interest rates could have a material effect on our Group’s profitability. In addition, the agreements for loan facilities and securities in relation thereto, contain covenants which may limit our Group’s future operating and financing flexibility, as certain future plans may be restricted or require the consent of the relevant financial institution. A breach of such covenants may result in the termination and/or enforcement of certain provisions granted for the relevant credit facility. 4. RISK FACTORS (Cont’d) Our Group is aware of such risks, and hence, shall take all necessary precautions to prevent any breach of our financial obligations, whilst adhering to strict financial management practices and prudent cash flow policies. Our borrowings and financing risks are further mitigated by the fact that the MTNs constitute approximately 70% of our Group’s total borrowings and bears a fixed coupon rate ranging from 6.50% to 7.45% per annum. In addition, future capital investments are expected to be partly financed through proceeds from the Public Issue as disclosed in Section 3.8 of this Prospectus. Nevertheless, there can be no assurance that the performance of our Group would remain favourable in the event of any adverse changes in interest rates.
4.1.11 Dependence on key management and technical personnel We believe that our Group’s continuous success depends, to a significant extent on the abilities, expertise and continuing effort of our key management and technical personnel. Our Group is headed by an experienced, committed and dynamic management team. Some of our management personnel has been in the oil and gas related industry for more than twenty (20) years. As such, the loss of the services of any of our key management and technical personnel may adversely affect the competitive advantage of our Group. Recognising the importance of our personnel, we have put in place various human resource incentives in our endeavour to retain our key personnel and to attract new skilled personnel. In line with our expansion plans, and to support our growing business and operations, we will continue to employ highly experienced and technically-skilled staff to strengthen our present team, provide constant training and education to upgrade the skills of our employees and provide our employees with suitable compensation packages. Further, as part of our Group’s management succession plan, we have made continuous efforts to train and groom the younger members of our management team to gradually take on more responsibilities and eventually succeed the senior management personnel of our Group.
4.1.12 Sensitivity to business and economic risk Our Group is subject to the risks inherent in the oil and gas related industry which includes, inter-alia, dependence on the spending of major oil and gas operators, labour and raw material shortages, increases in the cost of labour and raw materials, changes in general economic, business and credit conditions, fluctuations in foreign exchange rates, entry of new competitors and the renewal of licenses and new legislations that may impose stringent requirements on participants in the oil and gas industry. Although we seek to limit these risks by, inter-alia, having regular business, management and employee meetings, undertaking effective human resource management, securing long term contracts and maintaining good working relationships with oil and gas operators, putting in place plans to expand in both eXisting and new markets, investing in a new ten (10) acre fabrication yard to increase capacity and improve efficiency, no assurance can be given that any change in these factors will not have a material adverse impact on our Group after the Listing.
4.1.13 Political and economic conditions Any adverse developments in the political, economic and regulatory conditions, could materially and adversely affect the financial and business prospects of our Group. These include the risks of war, global economic downturn and unfavourable changes in the Government’s policy such as changes to methods of taxation, fluctuation in foreign exchange rates, inflation and changes in interest rates. Whilst we will continue to adopt effective measures such as prUdent financial management and efficient operating procedures, we cannot be assured that adverse political, economic and regulatory factors will not materially affect our Group’s performance.

4. RISK FACTORS (Cont’d) 4.2 RISKS RELATING TO INVESTING IN OUR SHARES 4.2.1 No prior market for our Shares and possible volatility of Share prices Prior to the IPO, there has been no pUblic market for our Shares. Hence, there is no assurance that upon listing, an active market in our Shares will develop, or, if developed, that such a market will be sustained. The IPO Price was determined through our negotiation with aSK, as Adviser, Underwriter and Placement Agent, after taking into account various factors. Please refer to Section 3.5 of this Prospectus on the basis for the determination of the IPO Price. There can be no assurance that the market price of our Shares will not decline below the IPO Price. Our Group believes that a number of factors could cause our Share price to fluctuate, including but not limited to sales of substantial amounts of our Shares in the public market in the immediate future, announcements of developments relating to our Group’s business, fluctuations in our Group’s operating results, general industry conditions or the performance of the global economy.
4.2.2 Forward looking statements This Prospectus contains forward-looking statements that are based on historical data, which may not be reflective of the future performance of our Group. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from future results. Although our Group believes that the expectations reflected in such forward-looking statements are reasonable at this point in time, we can give no assurance that such expectations will be justifiable. Whether or not such statements prove to be accurate would be dependent upon a variety of factors that may have an effect on the business and operations of our Group.
4.2.3 Trading price and volume of our Shares The trading prices and volume of our Shares could be SUbject to fluctuations in response to various factors, some of which are not within our control and may be unrelated or disproportionate to our operating results. These factors may include variations in the results of our operations, changes in analysts’ recommendations or projections, changes in general market conditions and broad market fluctuations. In addition, the performance of Bursa Securities, is very much dependent on external factors such as the performance of the regional and world bourses and the inflow or outflow of foreign funds. Sentiment is also largely driven by internal factors such as economic and political conditions of the country as well as the growth potential of the various sectors of the economy. These factors invariably contribute to the volatility of trading volumes witnessed on Bursa Securities, thus adding risks to the market price of our listed Shares. Nevertheless, the profitability of our Group is not dependent on the performance of Bursa Securities as the business activities of the Group have no direct correlation with the performance of securities listed on Bursa Securities.
4.2.4 Ownership and control by our existing shareholders As disclosed in Section 7.1.1 of this Prospectus, our Promoters will directly and indirectly, own in aggregate approximately 72.78% of our enlarged issued and paid-up share capital. As a result, these shareholders, acting together will have voting control over our Group and as such, will likely influence the outcome of certain matters requiring the vote of our Group’s shareholders, unless it is required that they abstain from voting either by law and/or by the relevant authorities. 4. RISK FACTORS (Cont’d) Nevertheless, our Group has appointed four (4) independent directors to ensure that any future transactions involving related parties are entered into on arms-length terms which are not detrimental to our Group, and to facilitate good corporate governance whilst promoting greater corporate transparency.

4.2.5 Failure or delay in our Listing The success of our Listing is also exposed to the risk that it may fail or be delayed due to any of the following reasons, amongst others:­(i) The placees under the private placement tranche of the Public Issue and the Offer for Sale fail to acquire the Shares allocated to them; and/or
(ii) We are unable to meet the public shareholding spread requirements i.e. at least 25% of the total number of our Shares for which Listing is sought must be held by a minimum number of 1,000 public shareholders holding not less than 100 shares each, at the time of Listing.

The above risks are mitigated by the following:­(i) The identified investors have provided undertakings to subscribe for their respective portion of the Shares to be placed to them;
(ii) The portion of the Issue Shares allocated to the Malaysian Public and reserved for the eligible Directors, employees and persons who have contributed to the success of our Group are fully underwritten; and

(iii) Our Directors and aSK, as Adviser, Underwriter and Placement Agent, will endeavour to ensure that our Group is able to meet the public spread requirements by allocating the Issue Shares applied for by the Malaysian Public to the required number of public shareholders during the balloting process. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK


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