Prospects

The Oil and Gas Industry in General

The oil and gas exploration and production activities worldwide have been strong due to the need to support the increasing demand for more energy resources which is in line with the growing level of industrialisation globally.

Our Directors believe that the following factors would continue to fuel exploration and production activities for oil and gas:

• Demand for oil and gas has been increasing steadily, thereby generating an increase in investments in the oil and gas industry to discover and explore new production locations to meet such demand. This leads to an increase in capital spending for oil and gas exploration and development, as well as capital spending on technology advances to improve the success rate in oil and gas discovery at lower costs.
• As offshore oil and gas exploration moves into more challenging deep waters and locations where infrastructure is lacking, larger and more complex equipment will be needed to support the production facility. New operating structures such as Floating Production Storage and Offloading ("FPSO") are increasingly being considered to replace the conventional fixed offshore platforms.

  We believe that FPSOs offer advantages such as
  
  

  1. lower capital expenditure,
  2. shorter fabrication and installation period of one and a half to two years,
  3. less sensitivity to water depth compared to gravity based installations.

  As the need for new operating structures increases in terms of new builds and vessel conversions, it offers great potential for stronger demand for new equipment and systems.

Southeast Asia Oil and Gas Industry

Vietnam

Vietnam is an important oil and gas producing country in Southeast Asia after Indonesia and Malaysia, and its oil and gas production has been growing. It has sufficient oil and gas reserves for exploration and production for several years to come. We expect the growth of Vietnam's oil and gas exploration and production industry to translate into higher demand for oil and gas equipment and machinery.

Indonesia

Indonesia is one of the largest oil and gas producers in Southeast Asia, as well as a major exporter of liquefied natural gas in Asia. It has sufficient oil and gas reserves available for exploration and production for several years to come. As such, we are of the view that Indonesia will offer great potential for a growth in demand for equipment and machinery for the oil and gas industry.

Trend Information of our Group

Since our incorporation, we have expanded our engineering capabilities from merely providing fabrication and installation services to providing a complete suite of engineering services that encompasses design and engineering, procurement, fabrication and commissioning. We are of the view that our Group will continue to be financially viable based on the following trends and plans for our business in the current financial year:

1. Production
   Our proposed relocation to a larger manufacturing facility at Loyang Way and the setting up of a new fabrication yard in Batam, Indonesia would increase our manufacturing capacity as there is a direct correlation between manufacturing capacity and manufacturing floor area.
   
   We observe that increasingly our customers place a stronger emphasis on the need to have a production facility with a waterfront area during tender evaluation. The availability of a waterfront facility would reduce transportation cost and ease loading and unloading. Our proposed premises at Loyang Way and our premises in Batam, Indonesia have waterfront areas and these would enable us to better position ourselves to tender for larger Engineering, Procurement, Construction and Commissioning ("EPCC") projects.
   
   
2. Sales
   We are of the view that the demand for our engineering services will be strong in the current financial year due to
   
   
   1. aging production facilities that require upgrading and/or newbuilds,
   2. the market for FPSOs remaining strong, and
   3. the high oil prices that encourage oil and gas exploration and production.
      
   
   ASEAN countries are relying on income from their oil and gas industry to offset the decline in revenue from other sources. Countries with a thriving oil and gas industry such as Indonesia and Malaysia may offer good business opportunities. We are taking steps to expand our operations through PT TOJ in Indonesia. PT TOJ will enable us to participate in tendering for projects in Indonesia which are only open to companies incorporated in Indonesia. We also intend to set up our marketing office through AMF Tech in Malaysia.
   
   
3. Costs and selling price
   There are two factors that may exert pricing pressure on our business in the current financial year and they are price competitiveness among suppliers of engineering services in the oil and gas industry and the need to secure projects because of our expansion plans that have resulted in higher production capacity and operating overheads.
   
   We are taking steps to mitigate the pricing pressure on our business by
   
   
   1. operating from a lower production cost centre in Batam, Indonesia,
   2. positioning ourselves as an integrated engineering services provider with capabilities in design and engineering, procurement, fabrication and commissioning, and
   3. expanding into new industries and business segments such as gas compressors for FPSOs and high pressure oxygen chambers.
      

Order Book

As at 27 February 2003, we have on hand secured orders and letters of intent worth $15.21 million. Barring unforeseen circumstances, our Directors are of the view that the operations of our Group will be financially viable in the current financial year based on our performance achieved to date.