Kencana Petroleum Bhd
(Dec 9, RM2.76)
Maintain buy with fair value RM3.17: Kencana announced last Thursday that its wholly-owned subsidiary Kencana HL Sdn Bhd had secured a contract from US-headquartered oil and gas (O&G) service company Bechtel International Inc on Dec 2 for the fabrication and assembly of structures and components for a liquefied natural gas (LNG) processing facility in Australia.
The contract, worth about RM1 billion, includes fabrication, assembly, testing and loading of process equipment modules for the Wheatstone project LNG plant facility in Ashburton
North (near Onslow) in Western Australia. The fabrication will be carried out at Kencana’s fabrication yard in Lumut.
The Chevron-operated Wheatstone project is one of Australia’s largest resource projects in Ashburton North, 12km west of Onslow in Western Australia. This project is a joint venture between the Australian subsidiaries of Chevron (73.6%), Apache (13%), Kuwait Foreign Petroleum Exploration Company (7%) and Shell (6.4%).
The initial phase will consist of two liquefied natural gas trains with a combined capacity of 8.9 million tonnes per year and a domestic gas plant.
Positive news but we make no change yet to our FY12/FY13 earnings because:
(i) we have assumed some order book replenishment for the company based on the expected average utilisation of its yard of 60% to 70%; and
(ii) as a detailed breakdown on the contract is not available, we are unable to gauge when revenue and profit would be recognised. Hence, we are keeping our FY12/FY13 earnings unchanged for now.
Judging from the project description in the announcement to Bursa Malaysia, Kencana seems to be tasked with not only carrying out the fabrication works but also the assembly, testing and loading of process equipment modules. Such services should fetch margins that are 10% to 20% higher than the usual 10% to 15% from normal fabrication works.
On Nov 22, Kencana announced that it had entered into several sale and purchase agreements with Lumut Maritime Terminal Sdn Bhd to acquire about 27ha of land for RM28.1 million to expand the fabrication yard in Lumut to about 97ha.
We believe this was in preparation for the Wheatsone project, which may utilise a huge chunk of the existing yard space, as well as to avoid interruptions to some of Kencana’s ongoing fabrication works.
Landing this massive job is testament to the global market recognition of Kencana’s delivery track record. Including the Wheatstone project, we believe that the company’s order book should balloon to more than RM3 billion, which will keep it sufficiently busy over the next two to three years.
Our fair value for the company remains unchanged at RM3.17, based on the existing price earnings ratio of 23 times FY12 earnings per share. Kencana remains our top pick in the O&G sector, apart from Dialog Group Bhd. — OSK Research, Dec 9
(Dec 9, RM2.76)
Maintain buy with fair value RM3.17: Kencana announced last Thursday that its wholly-owned subsidiary Kencana HL Sdn Bhd had secured a contract from US-headquartered oil and gas (O&G) service company Bechtel International Inc on Dec 2 for the fabrication and assembly of structures and components for a liquefied natural gas (LNG) processing facility in Australia.
The contract, worth about RM1 billion, includes fabrication, assembly, testing and loading of process equipment modules for the Wheatstone project LNG plant facility in Ashburton
North (near Onslow) in Western Australia. The fabrication will be carried out at Kencana’s fabrication yard in Lumut.
The Chevron-operated Wheatstone project is one of Australia’s largest resource projects in Ashburton North, 12km west of Onslow in Western Australia. This project is a joint venture between the Australian subsidiaries of Chevron (73.6%), Apache (13%), Kuwait Foreign Petroleum Exploration Company (7%) and Shell (6.4%).
The initial phase will consist of two liquefied natural gas trains with a combined capacity of 8.9 million tonnes per year and a domestic gas plant.
Positive news but we make no change yet to our FY12/FY13 earnings because:
(i) we have assumed some order book replenishment for the company based on the expected average utilisation of its yard of 60% to 70%; and
(ii) as a detailed breakdown on the contract is not available, we are unable to gauge when revenue and profit would be recognised. Hence, we are keeping our FY12/FY13 earnings unchanged for now.
Judging from the project description in the announcement to Bursa Malaysia, Kencana seems to be tasked with not only carrying out the fabrication works but also the assembly, testing and loading of process equipment modules. Such services should fetch margins that are 10% to 20% higher than the usual 10% to 15% from normal fabrication works.
On Nov 22, Kencana announced that it had entered into several sale and purchase agreements with Lumut Maritime Terminal Sdn Bhd to acquire about 27ha of land for RM28.1 million to expand the fabrication yard in Lumut to about 97ha.
We believe this was in preparation for the Wheatsone project, which may utilise a huge chunk of the existing yard space, as well as to avoid interruptions to some of Kencana’s ongoing fabrication works.
Landing this massive job is testament to the global market recognition of Kencana’s delivery track record. Including the Wheatstone project, we believe that the company’s order book should balloon to more than RM3 billion, which will keep it sufficiently busy over the next two to three years.
Our fair value for the company remains unchanged at RM3.17, based on the existing price earnings ratio of 23 times FY12 earnings per share. Kencana remains our top pick in the O&G sector, apart from Dialog Group Bhd. — OSK Research, Dec 9
