KENCANA (FV RM3.60 - BUY) 1HFY12 Results Review: Consistent as Ever

Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD

Research House: OSK

Price Call: BUY

Target Price: 3.60

Kencana's 1HFY12 results were within our estimates as thecompany  delivered anotherconsistent  robust  quarter, attributed to  the recognition ofmore fabrication works, better yard utilization and higher contribution fromdrilling services as well as offshore diving support services.  The numbers were also boosted bycontributions from newly acquired  AlliedMarine & Equipment SB. Maintain Buy, at the existing fair value of RM3.60. This stock remains as one of our toppicks in the O&G sector apart from Dialog.

Within expectations.The 1HFY12 results were above consensus but within our expectations, making up59% and 54% of consensus and our FY12 forecasts.  In true form, Kencana  once  again delivered another consistently goodquarter, with its results boosted  by therecognition of more fabrication works, better yard utilization and higher contributionfrom drilling services as well as offshore diving support services. Althoughits 2QFY12 revenue of RM545.8m was down by a slight 4.2% q-o-q, net profitticked up 3.3% q-o-q to RM86.3m. In terms of YTD comparison, both its 6-monthcumulative revenue and net profit of RM1,115.7m and RM169.9m were  higher by 61.8% and 65.0% respectively, mainlycontributed by Allied Marine & Equipment SB (AME), an underwater services companywhich it acquired in July 2011. This acquisition comes with a profit guaranteeof RM40m but we gather that AME can exceed  the amount  stated. AME, incorporated in 1988, has undertaken jobs in Malaysia, Indonesia,Vietnam, China and India over the past 3 years. It currently has about 3vessels under its stable.

Strong performanceand delivery. We have always liked Kencana's strong performance anddelivery track record, which ultimately also translates into healthy earningsfor the company, as  can be  seen from its historical quarterlyresults.  We believe  that the company's orderbook has ballooned tomore than RM3.0bn, which is expected to keep it busy over the next 2 years.

Maintain Buy. Ourfair value for Kencana remains at RM3.60, based on the existing PER of 23x FY12EPS. The stock remains as one of our top picks for the O&G sector  apart from Dialog.

Source: OSK188