Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD
Research House: RHB
Oil and gas sector
Maintain 'overweight': We believe that the key themes of 2011 would be: 1) Increased news flows from the government in line with its Economic Transformation Programme aspirations; 2) An uptrend in crude oil prices with the second round of quantitative easing in G3 countries; 3) Increased mergers and acquisitions as companies gear up for the upcycle in the sector; and 4) Enhanced marginal oil field, deepwater and greenfield projects being awarded by Petroliam Nasional Bhd as long-term reserve replenishment objectives become even more imperative going forward.
This appears to be true thus far. As a result, most of the oil and gas (O&G) stocks under our coverage have been spiking up in the first week of January.
Despite the rally in share prices, we expect the trading sentiment of the sector to continue as we believe that investors are pegging the current O&G sector valuations to the upcycle seen in 2007/08, where Malaysian O&G stocks traded at the one-year forward price-earnings ratios of up to 30 to 35 times. As such we do not discount share prices trading higher as news of contract awards continue and there is still ample liquidity in the market.
While we are positive on what the sector holds for 2011, as share prices continue to increase on news flows, investors should be mindful that the uptrend could be derailed by: 1) execution risks; 2) timing risks; and 3) liquidity risks.
Nevertheless, we reckon the positive news will continue for now given the factors highlighted above. We have thus raised the fair values of Dialog Group Bhd, Kencana Petroleum Bhd and Petra Perdana Bhd. We have kept Dialog an 'outperform', and downgraded our call on Kencana to a 'market perform' as we believe much of the news about marginal-field development has been priced in at this juncture. For Petra Perdana, we have lifted the stock to a 'market perform' based on FY2011 net tangible asset per share.
We reiterate that we are positive on the overall sector going into 2011, as the contract pipeline looks very strong, while crude oil prices that are expected to stay above the US$85 (RM261) per barrel mark will provide optimism the sector needs. As such, we are reiterating our 'overweight' call on the sector. ' RHB Research Institute, Jan 11
This article appeared in The Edge Financial Daily, January 12, 2011.
Company Name: KENCANA PETROLEUM BHD
Research House: RHB
Oil and gas sector
Maintain 'overweight': We believe that the key themes of 2011 would be: 1) Increased news flows from the government in line with its Economic Transformation Programme aspirations; 2) An uptrend in crude oil prices with the second round of quantitative easing in G3 countries; 3) Increased mergers and acquisitions as companies gear up for the upcycle in the sector; and 4) Enhanced marginal oil field, deepwater and greenfield projects being awarded by Petroliam Nasional Bhd as long-term reserve replenishment objectives become even more imperative going forward.
This appears to be true thus far. As a result, most of the oil and gas (O&G) stocks under our coverage have been spiking up in the first week of January.
Despite the rally in share prices, we expect the trading sentiment of the sector to continue as we believe that investors are pegging the current O&G sector valuations to the upcycle seen in 2007/08, where Malaysian O&G stocks traded at the one-year forward price-earnings ratios of up to 30 to 35 times. As such we do not discount share prices trading higher as news of contract awards continue and there is still ample liquidity in the market.
While we are positive on what the sector holds for 2011, as share prices continue to increase on news flows, investors should be mindful that the uptrend could be derailed by: 1) execution risks; 2) timing risks; and 3) liquidity risks.
Nevertheless, we reckon the positive news will continue for now given the factors highlighted above. We have thus raised the fair values of Dialog Group Bhd, Kencana Petroleum Bhd and Petra Perdana Bhd. We have kept Dialog an 'outperform', and downgraded our call on Kencana to a 'market perform' as we believe much of the news about marginal-field development has been priced in at this juncture. For Petra Perdana, we have lifted the stock to a 'market perform' based on FY2011 net tangible asset per share.
We reiterate that we are positive on the overall sector going into 2011, as the contract pipeline looks very strong, while crude oil prices that are expected to stay above the US$85 (RM261) per barrel mark will provide optimism the sector needs. As such, we are reiterating our 'overweight' call on the sector. ' RHB Research Institute, Jan 11
This article appeared in The Edge Financial Daily, January 12, 2011.
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