Kencana Petroleum Bhd (Feb 14, RM3.16)
Maintain buy with revised target price of RM3.66 from RM3.65: Kencana remains our top conviction “buy” in the oil and gas sector for 2012.
On a stand-alone basis, Kencana is a stock with strong earnings visibility and offers the best exposure to Petroliam Nasional Bhd’s domestic capital expenditure programme in fabrication, drilling and marginal field/enhanced oil recovery (EOR) projects.
We believe Sapura Crest-Kencana Petroleum (Newco) is highly likely to be featured in the KLCI FBM 30 come the next revision in June 2012, a positive in our view, in drawing higher interest and ratings.
Our marginally revised target price of RM3.66 offers a 15% upside from current levels.
We believe Kencana could be a major winner of the Petronas jobs, ahead of its domestic peer Malaysia Marine and Heavy Engineering Holdings Bhd (“hold”, target price [TP]: RM5.70), for it has the advantage of having ample yard space to take up more jobs. It is in the enviable position of being able to clinch most of Petronas Carigali Bhd, Hess, Nippon Oil and Murphy’s platform projects. We estimate total domestic orders to be worth up to RM5 billion this year.
We project Kencana will secure RM2 billion in job wins (+100% year-on-year) in 2012.
Construction of two new tender-assisted rigs — estimated total cost of US$400 million (RM1.2 billion) — is underway, with delivery targeted in 4Q13 and 1Q14.
This is in anticipation of strong domestic drilling requirements in 2013/14. With a pick-up in the marginal fields/EOR programme, demand for floating solutions (mobile offshore production unit) is equally strong.
Kencana could capitalise on this, as it has secured two old jack-ups for conversion. The likelihood of securing contracts is high.
We have raised FY14 forecast by 8%, taking into account the partial contribution of the KM-2 rig. Stronger growth is visible from FY15 onwards, as Kencana will fully recognise contributions from two new rigs (KM-2, KM-3) and potentially two Mopus as well.
Meanwhile, the plan to list Newco is on track to meet the April deadline. Kencana shareholders will get 1.26 Newco shares plus 48.6 sen in cash for every share held. Based on our TP of RM2.52 for Newco (20 times 2013 earnings per share), we derive a TP of RM3.66 for Kencana. — Maybank IB Research, Feb 14
This article appeared in The Edge Financial Daily, February 15, 2012.
Maintain buy with revised target price of RM3.66 from RM3.65: Kencana remains our top conviction “buy” in the oil and gas sector for 2012.
On a stand-alone basis, Kencana is a stock with strong earnings visibility and offers the best exposure to Petroliam Nasional Bhd’s domestic capital expenditure programme in fabrication, drilling and marginal field/enhanced oil recovery (EOR) projects.
We believe Sapura Crest-Kencana Petroleum (Newco) is highly likely to be featured in the KLCI FBM 30 come the next revision in June 2012, a positive in our view, in drawing higher interest and ratings.
Our marginally revised target price of RM3.66 offers a 15% upside from current levels.
We believe Kencana could be a major winner of the Petronas jobs, ahead of its domestic peer Malaysia Marine and Heavy Engineering Holdings Bhd (“hold”, target price [TP]: RM5.70), for it has the advantage of having ample yard space to take up more jobs. It is in the enviable position of being able to clinch most of Petronas Carigali Bhd, Hess, Nippon Oil and Murphy’s platform projects. We estimate total domestic orders to be worth up to RM5 billion this year.
We project Kencana will secure RM2 billion in job wins (+100% year-on-year) in 2012.
Construction of two new tender-assisted rigs — estimated total cost of US$400 million (RM1.2 billion) — is underway, with delivery targeted in 4Q13 and 1Q14.
This is in anticipation of strong domestic drilling requirements in 2013/14. With a pick-up in the marginal fields/EOR programme, demand for floating solutions (mobile offshore production unit) is equally strong.
Kencana could capitalise on this, as it has secured two old jack-ups for conversion. The likelihood of securing contracts is high.
We have raised FY14 forecast by 8%, taking into account the partial contribution of the KM-2 rig. Stronger growth is visible from FY15 onwards, as Kencana will fully recognise contributions from two new rigs (KM-2, KM-3) and potentially two Mopus as well.
Meanwhile, the plan to list Newco is on track to meet the April deadline. Kencana shareholders will get 1.26 Newco shares plus 48.6 sen in cash for every share held. Based on our TP of RM2.52 for Newco (20 times 2013 earnings per share), we derive a TP of RM3.66 for Kencana. — Maybank IB Research, Feb 14
This article appeared in The Edge Financial Daily, February 15, 2012.
