Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD
Kencana Petroleum Bhd
(June 27, RM2.82)
Maintain buy at RM2.79 with fair value of RM3.40: We maintain our 'buy' call on Kencana Petroleum Bhd with an unchanged fair value of RM3.40, pegged to an FY12F price-earnings ratio (PER) of 22 times. This follows another strong quarter of earnings delivery.
Kencana's 9MFY11 net profit of RM159 million (+69% year-on-year) was slightly above expectations, accounting for 76% of our earlier FY11F net profit of RM210 million and street estimate of RM211 million. This stems from higher contributions from the engineering, procurement, construction, installation & commissioning (EPCIC), marine engineering & project management division, which accounted for 68% of 9MFY11 group net profit.
Hence, we have raised our FY11F earnings by 4% due to a one percentage point increase in fabrication earnings before interest and tax (Ebit) margin to 18%. But FY12F/13F earnings are maintained on unchanged fabrication margins of 19%. Hence, Kencana's fair value, pegged to FY12F earnings, is likewise unchanged.
The group's 3QFY11 net profit rose 12% quarter-on-quarter to RM56 million largely due to the EPCIC segment, which registered a 9% increase in billings and 0.4 percentage point increase in net margin to 12%.
Since the beginning of the year, Kencana has secured RM787 million worth of fresh contracts, including an estimated RM200 million engineering, procurement and construction (EPC) works for the Berantai marginal field ' for which the group has a 25% stake in the risk-sharing contract.
These account for 40% of the group's targeted new orders worth up to RM2 billion for this calendar year. With the new orders secured thus far, we estimate that Kencana's outstanding order book has risen by 5% to RM2.3 billion ' representing 1.7 times FY11F revenue.
The group's order book prospects are still bright, given Petroliam Nasional Bhd's spending programme of RM300 billion over the next five years, which include enhanced oil recovery and marginal field jobs. We understand that Kencana may be involved in the bidding for two other marginal fields later this year.
There is also mergers and acquisitions excitement as we expect additional joint ventures for Kencana in offshore construction services following the group's proposed RM400 million acquisition of subsea service provider Allied Marine & Equipment Sdn Bhd.
The stock currently trades at an attractive FY12F PER of 18 times, below its 2007 peak of 25 times. ' AmResearch, June 27
This article appeared in The Edge Financial Daily, June 28, 2011.
Company Name: KENCANA PETROLEUM BHD
| Research House: AMMB | Price Call: BUY | Target Price: 3.40 |
Kencana Petroleum Bhd
(June 27, RM2.82)
Maintain buy at RM2.79 with fair value of RM3.40: We maintain our 'buy' call on Kencana Petroleum Bhd with an unchanged fair value of RM3.40, pegged to an FY12F price-earnings ratio (PER) of 22 times. This follows another strong quarter of earnings delivery.
Kencana's 9MFY11 net profit of RM159 million (+69% year-on-year) was slightly above expectations, accounting for 76% of our earlier FY11F net profit of RM210 million and street estimate of RM211 million. This stems from higher contributions from the engineering, procurement, construction, installation & commissioning (EPCIC), marine engineering & project management division, which accounted for 68% of 9MFY11 group net profit.
Hence, we have raised our FY11F earnings by 4% due to a one percentage point increase in fabrication earnings before interest and tax (Ebit) margin to 18%. But FY12F/13F earnings are maintained on unchanged fabrication margins of 19%. Hence, Kencana's fair value, pegged to FY12F earnings, is likewise unchanged.
The group's 3QFY11 net profit rose 12% quarter-on-quarter to RM56 million largely due to the EPCIC segment, which registered a 9% increase in billings and 0.4 percentage point increase in net margin to 12%.
Since the beginning of the year, Kencana has secured RM787 million worth of fresh contracts, including an estimated RM200 million engineering, procurement and construction (EPC) works for the Berantai marginal field ' for which the group has a 25% stake in the risk-sharing contract.
These account for 40% of the group's targeted new orders worth up to RM2 billion for this calendar year. With the new orders secured thus far, we estimate that Kencana's outstanding order book has risen by 5% to RM2.3 billion ' representing 1.7 times FY11F revenue.
The group's order book prospects are still bright, given Petroliam Nasional Bhd's spending programme of RM300 billion over the next five years, which include enhanced oil recovery and marginal field jobs. We understand that Kencana may be involved in the bidding for two other marginal fields later this year.
There is also mergers and acquisitions excitement as we expect additional joint ventures for Kencana in offshore construction services following the group's proposed RM400 million acquisition of subsea service provider Allied Marine & Equipment Sdn Bhd.
The stock currently trades at an attractive FY12F PER of 18 times, below its 2007 peak of 25 times. ' AmResearch, June 27
This article appeared in The Edge Financial Daily, June 28, 2011.
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