Company Name: KENCANA PETROLEUM BHD
Research House: AMMB
Kencana Petroleum Bhd
(Sept 2, RM1.57)
Maintain buy at RM1.54 with fair value RM2: Kencana Petroleum (Kencana) has secured small jobs worth RM32 million for provision of hook-up and commissioning services (HUC) for fields located offshore Malaysia by unnamed production sharing contractors. This is not a surprise as we had highlighted that Kencana was poised to secure several small HUC jobs in our past reports.
With these new orders, on top of an RM11 million contract to provide HUC services for Petronas Carigali's Samarang field located off Sabah, Kencana has secured RM77 million to date in HUC contracts for 2010.
Including this contract, Kencana has secured RM634 million worth of contracts since the beginning of 2010. Including this new job, Kencana has almost secured our new order assumption of RM1 billion for FY2010.
As our new order assumptions are maintained, we likewise maintain FY2010F-12F earnings.
This new contract marginally raised Kencana's outstanding fabrication order book of RM1 billion. But including Petronas Carigali's drilling charter for the tender rig and marine charter for the 8,080bhp Gemas anchor handling tug and supply vessel, the group's total outstanding contracts stand at RM1.9 billion, 1.5 times FY2010F revenue.
As the Samsung-Naim Holdings JV recently secured the US$766 million Sabah oil and gas terminal (SOGT) in Kimanis, we estimate that the group's tenders have fallen from RM6.5 billion back to RM4 billion. This still represents a healthy four times Kencana's outstanding fabrication order book, and we highlight that Kencana was not one of the bidders favoured to win the SOGT job.
We remain positive on Kencana, which is poised to ride on an up-cycle in new domestic O&G contract rollouts coupled with the listing of MISC's Malaysia Marine & Heavy Engineering this October. We understand that there could be fabrication contracts worth up to RM9 billion, which could be open for bidding over the next few months.
We maintain our 'buy' call on Kencana with unchanged fair value of RM2, pegged to a CY2010 PER of 20 times. The stock currently trades at an attractive CY2010F PER of 16 times, way below its 2007 peak of 25 times. ' AmResearch, Sept 2
This article appeared in The Edge Financial Daily, September 3 2010.