(July 8, RM1.45)
Maintain buy at RM1.46 with target price RM2.06: Kencana announced on Wednesday that its 100%-subsidiary, Kencana HL SB, has secured a contract from Houston, Texas-based Newfield Peninsula Malaysia Inc for the provision of procurement and construction of topsides. The contract, valued at about RM201.1 million, will involve procurement and construction of a wellhead platform topside, central processing platform topside, living quarters and bridge for the PM329 East Piatu Development Project, located off Peninsular Malaysia. This one-off contract is expected to be delivered in stages within 3QCY11.
We understand that this block, covering about 310 sq km in the Malay Basin, is located about 350km offshore Kerteh, Terengganu. We also gather from Newfield’s April 22, 2009 publication that the first oil production is expected next year, with Newfield having 70% working interest. However, we are unsure whether there would be any delay in this project since the news has been circulating for about a year, but at least there is some positive development on this project involving the construction of its O&G platform structures.
Hit rate increases to about 35% of total industry awards. This includes the RM201 million topsides contract from Newfield, in addition to Kencana’s existing RM422 million secured earlier, against the total contract value awarded to other listed O&G companies in Malaysia, which we gather should total about RM1.8 billion.
We are keeping our FY10-11 forecasts unchanged as the new job order is within the order book replenishment guidance from management. In fact we are looking at a revenue of close to RM2 billion for FY11.
Our target price for Kencana remains unchanged at RM2.06, based on a calendarised PER of 16 times FY11 EPS. Kencana remains our top pick for the sector. We like its strong delivery track record, which we think puts it in a position to benefit from new fabrication jobs from Petronas and its PSC contractors. We believe its current order book would now increase to RM1.8 billion while its tender book should be replenished back to about RM2 billion. — OSK Investment Research, July 8
This article appeared in The Edge Financial Daily, July 9, 2010.
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