Stock Name: MHB
Company Name: MALAYSIA MARINE AND HEAVY ENG
Research House: AMMB
Oil & Gas
Maintain 'overweight': Prime Minister Datuk Seri Najib Razak on Tuesday announced that ExxonMobil and Shell would invest up to RM15 billion to upgrade their existing oil & gas (O&G) fields and facilities.
ExxonMobil and its production sharing contract partner, Petronas Carigali, plan to invest over RM10 billion to rejuvenate mature facilities and undertake enhanced oil recovery activities in the Tapis and the Telok gas fields off Terengganu while Shell Malaysia will invest RM5 billion in upgrading and expanding upstream, midstream and downstream facilities across Malaysia.
For fabricators, we believe the likely beneficiaries will be Malaysia Marine & Heavy Engineering (MMHE), Kencana Petroleum and Sime Engineering, all of whom have successfully executed Petronas' projects in the past. We expect the RM7 billion Tapis contract to be awarded to MMHE, as its Pasir Gudang yard will have spare capacity by mid-2011 when the topside of the Gemusut-Kakap floating production storage semi-submersible is lifted onto its hull.
Given the support of Petronas, MMHE is also likely to be the front-runner for the Telok project. But as the Tapis and Telok projects are expected to commence operations in 2013, we are unsure if MMHE can undertake both jobs simultaneously. Hence, we believe Kencana and Sime Engineering have a fair chance of securing the Telok award or at least a subcontracted portion.
For installation services, SapuraCrest is by far the most likely provider given that the group currently operates three pipelaying-cum-construction vessels while other bidders could be the Kencana-McDermott, Alam Maritim-Swiber and Perisai Petroleum-Ezra Holdings joint-ventures. For Shell's upgrading works, we expect equipment and service providers such as Dialog Group, Kencana, Wah Seong and KNM Group to secure some of the fabrication jobs.
Rampant global liquidity flows coupled with the prolific new domestic projects being implemented by Petronas and the government's push to create a regional hub are expected to continue stretching the industry's valuations to the peaks experienced in the past three years. We note that, in 2007, the one-year forward PEs of Dialog reached 40 times, SapuraCrest 29 times and Kencana 22 times.
As such, we have raised our PE targets to 22 times for SapuraCrest (from 16 times earlier) and Kencana to 22 times (from 18 times earlier) while assigning 25 times for MMHE ' a 15% premium for its greater order book clarity.
The O&G upcycle is still running full tilt with up to RM10 billion largely from enhanced oil recovery, marginal and deepwater fields over the next six months. Hence, we maintain our 'overweight' view on the sector with SapuraCrest being our top 'buy' call given Petronas' capex rollouts and underpinned by the group's huge lock-in order book which should sustain earnings for the next three years.
Dialog remains a 'buy' in spite of a possible retracement after its impressive share price run given the excitement from the Pengerang deepwater development. The share rally on Kencana ' while still a 'buy' due to marginal fields and M&A newsflows ' could moderate with its proposed equity raising exercise. ' AmResearch, Jan 12
This article appeared in The Edge Financial Daily, January 13, 2011.
Company Name: MALAYSIA MARINE AND HEAVY ENG
Research House: AMMB
Oil & Gas
Maintain 'overweight': Prime Minister Datuk Seri Najib Razak on Tuesday announced that ExxonMobil and Shell would invest up to RM15 billion to upgrade their existing oil & gas (O&G) fields and facilities.
ExxonMobil and its production sharing contract partner, Petronas Carigali, plan to invest over RM10 billion to rejuvenate mature facilities and undertake enhanced oil recovery activities in the Tapis and the Telok gas fields off Terengganu while Shell Malaysia will invest RM5 billion in upgrading and expanding upstream, midstream and downstream facilities across Malaysia.
For fabricators, we believe the likely beneficiaries will be Malaysia Marine & Heavy Engineering (MMHE), Kencana Petroleum and Sime Engineering, all of whom have successfully executed Petronas' projects in the past. We expect the RM7 billion Tapis contract to be awarded to MMHE, as its Pasir Gudang yard will have spare capacity by mid-2011 when the topside of the Gemusut-Kakap floating production storage semi-submersible is lifted onto its hull.
Given the support of Petronas, MMHE is also likely to be the front-runner for the Telok project. But as the Tapis and Telok projects are expected to commence operations in 2013, we are unsure if MMHE can undertake both jobs simultaneously. Hence, we believe Kencana and Sime Engineering have a fair chance of securing the Telok award or at least a subcontracted portion.
For installation services, SapuraCrest is by far the most likely provider given that the group currently operates three pipelaying-cum-construction vessels while other bidders could be the Kencana-McDermott, Alam Maritim-Swiber and Perisai Petroleum-Ezra Holdings joint-ventures. For Shell's upgrading works, we expect equipment and service providers such as Dialog Group, Kencana, Wah Seong and KNM Group to secure some of the fabrication jobs.
Rampant global liquidity flows coupled with the prolific new domestic projects being implemented by Petronas and the government's push to create a regional hub are expected to continue stretching the industry's valuations to the peaks experienced in the past three years. We note that, in 2007, the one-year forward PEs of Dialog reached 40 times, SapuraCrest 29 times and Kencana 22 times.
As such, we have raised our PE targets to 22 times for SapuraCrest (from 16 times earlier) and Kencana to 22 times (from 18 times earlier) while assigning 25 times for MMHE ' a 15% premium for its greater order book clarity.
The O&G upcycle is still running full tilt with up to RM10 billion largely from enhanced oil recovery, marginal and deepwater fields over the next six months. Hence, we maintain our 'overweight' view on the sector with SapuraCrest being our top 'buy' call given Petronas' capex rollouts and underpinned by the group's huge lock-in order book which should sustain earnings for the next three years.
Dialog remains a 'buy' in spite of a possible retracement after its impressive share price run given the excitement from the Pengerang deepwater development. The share rally on Kencana ' while still a 'buy' due to marginal fields and M&A newsflows ' could moderate with its proposed equity raising exercise. ' AmResearch, Jan 12
This article appeared in The Edge Financial Daily, January 13, 2011.
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