Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD
Research House: CIMB
Kencana Petroleum Bhd
(June 29, RM1.45)
Maintain outperform at RM1.47 with a target price of RM2.15: Kencana posted a 3QFY7/10 net profit of RM31 million, taking its 9M bottom line to RM94 million. At 72% of our full-year forecast and 73% of consensus estimate, the performance was broadly in line with expectations. A stronger 4Q is anticipated to make up for the shortfall and round off a record year. The company is reaping the benefits of moving up the value chain, evident from the double-digit bottom line growth despite a top line contraction. We maintain our forecasts and target price of RM2.15 as we continue to apply our target market PER of 15 times. Kencana remains an outperform, premised on the potential rerating catalysts of active order book replenishment, and M&A.
3Q revenue fell 3% year-on-year (y-o-y) mostly due to the completion of sizeable projects, for example the RM980 million Petronas Carigali job. However, net profit climbed 13% y-o-y with contribution from high-margin structures such as drilling rig KM1. The fabrication of the rig has been completed. It will be on a five-year, RM827 million Petronas drilling contract effective August. Fabrication of the second drilling rig KM has been suspended pending clearer visibility of Petronas' drilling requirements.
Kencana is poised to hit a record net profit of RM132 million (+11% y-o-y) in FY10. We expect FY11 annual growth to be more exciting at 62%, mostly due to the contributions from these businesses: 1) Drilling: KM1's drilling profits will flow for the first year in FY11. Now 25%-owned, the rig will be entirely Kencana's come 1QFY11, assuming the company's proposed US$66.6 million deal with Mermaid Maritime materialises (see our note dated June 22). 2) Marine support: This business commenced its operations on Jan 10. FY11 will be its first full year of contribution. Kencana currently owns two AHTS vessels and is considering to expand its fleet. As at April 30, the company had net cash of RM178 million or 11 sen per share.
Since April 15, Kencana has clinched five contracts worth RM389 million, taking the value of its current orders to RM2 billion. We expect news flow from the company to stay active as it is vying for RM1 billion worth of fabrication contracts in Malaysia, India and Australia. Capacity is not an issue as Kencana's 169-acre yard in Lumut is running at 50% utilisation, with extra space earmarked for new contracts. ' CIMB Research
This article appeared in The Edge Financial Daily, June 30, 2010.
Company Name: KENCANA PETROLEUM BHD
Research House: CIMB
Kencana Petroleum Bhd
(June 29, RM1.45)
Maintain outperform at RM1.47 with a target price of RM2.15: Kencana posted a 3QFY7/10 net profit of RM31 million, taking its 9M bottom line to RM94 million. At 72% of our full-year forecast and 73% of consensus estimate, the performance was broadly in line with expectations. A stronger 4Q is anticipated to make up for the shortfall and round off a record year. The company is reaping the benefits of moving up the value chain, evident from the double-digit bottom line growth despite a top line contraction. We maintain our forecasts and target price of RM2.15 as we continue to apply our target market PER of 15 times. Kencana remains an outperform, premised on the potential rerating catalysts of active order book replenishment, and M&A.
3Q revenue fell 3% year-on-year (y-o-y) mostly due to the completion of sizeable projects, for example the RM980 million Petronas Carigali job. However, net profit climbed 13% y-o-y with contribution from high-margin structures such as drilling rig KM1. The fabrication of the rig has been completed. It will be on a five-year, RM827 million Petronas drilling contract effective August. Fabrication of the second drilling rig KM has been suspended pending clearer visibility of Petronas' drilling requirements.
Kencana is poised to hit a record net profit of RM132 million (+11% y-o-y) in FY10. We expect FY11 annual growth to be more exciting at 62%, mostly due to the contributions from these businesses: 1) Drilling: KM1's drilling profits will flow for the first year in FY11. Now 25%-owned, the rig will be entirely Kencana's come 1QFY11, assuming the company's proposed US$66.6 million deal with Mermaid Maritime materialises (see our note dated June 22). 2) Marine support: This business commenced its operations on Jan 10. FY11 will be its first full year of contribution. Kencana currently owns two AHTS vessels and is considering to expand its fleet. As at April 30, the company had net cash of RM178 million or 11 sen per share.
Since April 15, Kencana has clinched five contracts worth RM389 million, taking the value of its current orders to RM2 billion. We expect news flow from the company to stay active as it is vying for RM1 billion worth of fabrication contracts in Malaysia, India and Australia. Capacity is not an issue as Kencana's 169-acre yard in Lumut is running at 50% utilisation, with extra space earmarked for new contracts. ' CIMB Research
This article appeared in The Edge Financial Daily, June 30, 2010.
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