Kencana Petroleum Bhd (Oct 20, RM2.55)
Maintain buy at RM2.51 with fair value of RM3.54: We maintain our “buy” call on Kencana Petroleum with an unchanged fair value of RM3.54, pegged to a CY12 price-earnings ratio (PER) of 22 times to the merged Kencana-SapuraCrest Petroleum Bhd earnings.
The Edge Financial Daily reported that Kencana is in talks with unidentified parties to acquire over 130 acres of land beside its main fabrication yard in Lumut, Perak. One of its neighbours is Lumut Maritime Terminal Sdn Bhd, which is jointly-owned by Integrax Bhd and the Perak government.
Kencana’s fabrication yard currently measures 192 acres. This means that the yard could be potentially increased by 68% to 322 acres. But this will still be smaller than Malaysia Marine and Heavy Engineering Sdn Bhd’s combined yard space of 502 acres, including the proposed acquisition of Sime Darby’s 130-acre yard in Pasir Gudang.
Assuming land acquisition at RM20 psf, the entire cost could easily reach RM100 million, which is the guidance from management on Kencana’s capital expenditure programme. After the merger with SapCrest, this could mean that the combined net gearing could reach one times.
The purpose of the land expansion is to create depth in the group’s fabrication capability and enable a streamlined process which will lead to efficiencies of scale. But the group’s existing yard is only 50% to 60% utilised based on the group’s current order book. This means that Kencana is confident of securing significant fresh orders by early next year.
We still view the group’s order book prospects as bright, given Petroliam Nasional Bhd’s spending programme of RM300 billion over the next five years, which includes enhanced oil recovery and marginal field jobs. Among its many domestic
developments, Petronas’ RM15 billion fast-track project to develop gas reserves from a cluster of fields in the North Malay basin, off Peninsular Malaysia, is expected to translate into another round of fresh contracts soon.
Oil and gas online new portal Upstream recently reported that Petronas is negotiating with Kencana and SapCrest to fabricate and install two wellhead platforms for the Bunga Dahlia and Teratai fields, connected to nine fields in Blocks PM301 and PM302 and in the Bergading contract area.
Separately, we understand that Petronas Carigali Sdn Bhd could be opening up for tender three central processing platform projects, each worth over RM1 billion, for the Dulang, Semarang and Bokor oil fields.
The stock currently trades at an attractive CY12F PER of 17 times, below its 2007 peak of 22 times. — AmResearch, Oct 20
Maintain buy at RM2.51 with fair value of RM3.54: We maintain our “buy” call on Kencana Petroleum with an unchanged fair value of RM3.54, pegged to a CY12 price-earnings ratio (PER) of 22 times to the merged Kencana-SapuraCrest Petroleum Bhd earnings.
The Edge Financial Daily reported that Kencana is in talks with unidentified parties to acquire over 130 acres of land beside its main fabrication yard in Lumut, Perak. One of its neighbours is Lumut Maritime Terminal Sdn Bhd, which is jointly-owned by Integrax Bhd and the Perak government.
Kencana’s fabrication yard currently measures 192 acres. This means that the yard could be potentially increased by 68% to 322 acres. But this will still be smaller than Malaysia Marine and Heavy Engineering Sdn Bhd’s combined yard space of 502 acres, including the proposed acquisition of Sime Darby’s 130-acre yard in Pasir Gudang.
Assuming land acquisition at RM20 psf, the entire cost could easily reach RM100 million, which is the guidance from management on Kencana’s capital expenditure programme. After the merger with SapCrest, this could mean that the combined net gearing could reach one times.
The purpose of the land expansion is to create depth in the group’s fabrication capability and enable a streamlined process which will lead to efficiencies of scale. But the group’s existing yard is only 50% to 60% utilised based on the group’s current order book. This means that Kencana is confident of securing significant fresh orders by early next year.
Kencana is said to be in talks with unidentified parties to acquire
over 130 acres beside its main fabrication yard in Lumut.
over 130 acres beside its main fabrication yard in Lumut.
We still view the group’s order book prospects as bright, given Petroliam Nasional Bhd’s spending programme of RM300 billion over the next five years, which includes enhanced oil recovery and marginal field jobs. Among its many domestic
developments, Petronas’ RM15 billion fast-track project to develop gas reserves from a cluster of fields in the North Malay basin, off Peninsular Malaysia, is expected to translate into another round of fresh contracts soon.
Oil and gas online new portal Upstream recently reported that Petronas is negotiating with Kencana and SapCrest to fabricate and install two wellhead platforms for the Bunga Dahlia and Teratai fields, connected to nine fields in Blocks PM301 and PM302 and in the Bergading contract area.
Separately, we understand that Petronas Carigali Sdn Bhd could be opening up for tender three central processing platform projects, each worth over RM1 billion, for the Dulang, Semarang and Bokor oil fields.
The stock currently trades at an attractive CY12F PER of 17 times, below its 2007 peak of 22 times. — AmResearch, Oct 20
