Hwang DBS Vickers Research said since its last update dated July 6, Tanjung Offshore’s share price had jumped 44% buoyed by high expectations of what Ekuiti Nasional Bhd (Ekuinas) could bring to the fold.
It said on Wednesday, Sept 8 that Tanjung Offshore’s comparable peers share prices rose an average of only 3% over the same period.
“While Tanjung Offshore is poised for strong earnings turnaround this year, we believe investors may have jumped the gun on its growth prospects. We do not expect significant awards in the near term, only clearer visibility of contracts in the pipeline,” it said.
HDBSVR said Tanjung Offshore had indicated there could be several sizable tenders, “but we understand these jobs may not materialise sooner than 2H11”.
The research house said it believed FY11 growth would still be largely driven by charter contracts secured by Tanjung Offshore’s newbuilds this year, as well as contract wins from its engineering division in 2H10.
“We raised our target price to RM1.60/share after raising target multiple to 12x FY11F earnings, based on Tanjung Offshore’s normalised historical valuation. But at current price, valuation seems stretched at 13.5x PE (diluted EPS) against peers’ average of 9.1x. Hence, we downgrade Tanjung Offshore to Hold,” it said.
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