Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD
Research House: MIDF
Kencana Petroleum Bhd
(May 12, RM1.58)
Maintain trading buy at RM1.57 with target price of RM1.86: Kencana announced it had been awarded a RM91.9 million contract for the installation of a subsea pipeline and other related external works between a water treatment plant in Beaufort, Sabah and Labuan.
The contract was awarded by the ministry of energy, green technology and water. Initial works are expected to commence by July 2010 the earliest, with completion targeted by October 2010.
We view the award positively as it jives with our earlier view that contract awards will return, nevertheless in small packages. Its order book replenishment remains on track with its RM1 billion target of RM290 million year to date.
Our preliminary understanding suggests that the fabrication of the pipelines will be conducted by Kencana while the installation of the pipeline will be undertaken by its joint-venture partner namely Leighton Contractors (M) S/B via purpose-built pipe-lay barges (namely the Leighton Stealth and Leighton Eclipse).
Leighton has significant experience in the offshore oil and gas (O&G) business. The group has capabilities to lay large diameter offshore pipelines as well it being an industry leader in single- point mooring (SPM) system installations.
Leighton has previously worked on India's Mumbai High Field, offshore Sudan and the Black Sea. However, this may be the group's first foray into Malaysian O&G shores. The group's previous exposure to Malaysian project entails civil engineering and infrastructure development. Some of its involvements in Malaysia are the Rawang-Ipoh rail track project, Duta Plaza (Avenue K), KL-Putrajaya Highway and Maxis national optical fibre phase II.
Kencana's current order book levels stand at RM1.64 billion with Kencana Petroleum Ventures capturing the bulk of it (RM827.2 million). We understand Kencana is in a good position to capture further contracts given its present free utilisation space in its Lumut yard standing at 55%. We estimate possible project bids of up to RM1 billion in its present tender books.
Maintain trading buy with an unchanged target price of RM1.86 based on a rolled over earnings per share 2011 (EPS11) on 15 times. We believe Kencana will continue to be one of the key beneficiaries of Petronas contract awards given its proven track record with Petronas, spare yard capacity and Petronas preference for locally-flagged vessels. Furthermore, market players are suggesting more contracts are expected to be awarded in 2H10 with up to RM4 billion of fabrication and marine engineering contracts in 2010.
We will introduce our FY11 earnings forecasts after Kencana's 4QFY10 results which are due to be announced in mid-July 2010. The counter is currently trading at 15.1 times EPS FY10, within its five-year PER (price-earnings ratio) band of 13.9 times to 42.3 times. - MIDF Research, May 12
This article appeared in The Edge Financial Daily, May 13, 2010.
Company Name: KENCANA PETROLEUM BHD
Research House: MIDF
Kencana Petroleum Bhd
(May 12, RM1.58)
Maintain trading buy at RM1.57 with target price of RM1.86: Kencana announced it had been awarded a RM91.9 million contract for the installation of a subsea pipeline and other related external works between a water treatment plant in Beaufort, Sabah and Labuan.
The contract was awarded by the ministry of energy, green technology and water. Initial works are expected to commence by July 2010 the earliest, with completion targeted by October 2010.
We view the award positively as it jives with our earlier view that contract awards will return, nevertheless in small packages. Its order book replenishment remains on track with its RM1 billion target of RM290 million year to date.
Our preliminary understanding suggests that the fabrication of the pipelines will be conducted by Kencana while the installation of the pipeline will be undertaken by its joint-venture partner namely Leighton Contractors (M) S/B via purpose-built pipe-lay barges (namely the Leighton Stealth and Leighton Eclipse).
Leighton has significant experience in the offshore oil and gas (O&G) business. The group has capabilities to lay large diameter offshore pipelines as well it being an industry leader in single- point mooring (SPM) system installations.
Leighton has previously worked on India's Mumbai High Field, offshore Sudan and the Black Sea. However, this may be the group's first foray into Malaysian O&G shores. The group's previous exposure to Malaysian project entails civil engineering and infrastructure development. Some of its involvements in Malaysia are the Rawang-Ipoh rail track project, Duta Plaza (Avenue K), KL-Putrajaya Highway and Maxis national optical fibre phase II.
Kencana's current order book levels stand at RM1.64 billion with Kencana Petroleum Ventures capturing the bulk of it (RM827.2 million). We understand Kencana is in a good position to capture further contracts given its present free utilisation space in its Lumut yard standing at 55%. We estimate possible project bids of up to RM1 billion in its present tender books.
Maintain trading buy with an unchanged target price of RM1.86 based on a rolled over earnings per share 2011 (EPS11) on 15 times. We believe Kencana will continue to be one of the key beneficiaries of Petronas contract awards given its proven track record with Petronas, spare yard capacity and Petronas preference for locally-flagged vessels. Furthermore, market players are suggesting more contracts are expected to be awarded in 2H10 with up to RM4 billion of fabrication and marine engineering contracts in 2010.
We will introduce our FY11 earnings forecasts after Kencana's 4QFY10 results which are due to be announced in mid-July 2010. The counter is currently trading at 15.1 times EPS FY10, within its five-year PER (price-earnings ratio) band of 13.9 times to 42.3 times. - MIDF Research, May 12
This article appeared in The Edge Financial Daily, May 13, 2010.
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