KENCANA could find major investor, say analysts

Kencana Petroleum Bhd’s move to not seek an extension of a proposed 10% share placement that has lapsed is not expected to have much impact on the company, analysts said.

Kencana had said on Monday that it would not be seeking any further extension on the proposed share placement plan that had been extended several times over three years.

“Kencana could revive the share placement at a later date or find other means of financing such as finding a major investor to pump in cash,” said an analyst covering the stock at a bank-backed research house.

Meanwhile, in a report yesterday, AmResearch maintained a buy on the counter with an unchanged target price of RM2 per share.

“We are neutral on this development (the lapsing of the share placement) as Kencana is likely to secure other passive investors in KM1 to pare down its net gearing levels,” the research house said. KM1 refers to the company’s Kencana-Mermaid tender rig 1.

In June, Kencana announced the proposed acquisition of a 75% stake it does not already own in KM1 for a total amount of US$67 million (RM215.1 million). Settlement was to be done through a combination of debt and cash that would raise the company’s gearing from 20% to 75%, said the AmResearch report.

The research house added that with the recent spate of merger and acquisition activities, it did not discount the possibility of Kencana reviving the private placement at a later stage should an acquisition target emerge.

AmResearch’s buy call at an unchanged fair value of RM2 per share is pegged to a price-to-earnings ratio (PE) of 20 times for the calendar year 2010 (CY10).

“The stock currently trades at an attractive CY10 PE of 16 times, way below its 2007 peak of 20 times. We remain positive on Kencana, which is poised to ride on the upcycle in new oil and gas contracts,” it said.

AmResearch is also bullish on Kencana’s order book growth this year. The company’s current order book of RM2 billion does not include “a likely bid for the revised Sabah Oil & Gas Terminal (SOGT) project in Kimanis, which could cost up to RM2 billion”, it said.


Written by Loong Tse Min
This article appeared in The Edge Financial Daily, July 7, 2010.