KUCHING: Kencana Petroleum Bhd (Kencana Petroleum) recently announced its earnings for the third month for the financial year ending July 2011 (3MFY07/11) which came within expectations due to the start-up of its KM-1 drilling rig.
According to a research note from RHB Research Capital Sdn Bhd (RHB Research), the 3MFY07/11 core net profit accounted for 23 per cent and 27 per cent of both the research firm and consensus full-year estimates.
“The company’s earnings were significantly better due to the start-up of its KM-1 drilling rig which began operations in September 2010,” highlighted RHB Research.
“Recall that we previously talked on the commencement of the drilling contract bumping up revenue by approximately RM150 million per annum and we had consequently imputed net earnings of RM37.5 to RM45 million per annum for FY11 to FY13 for the segment.”
The research house continued to mark 2011 as a new level for the company as part of its earnings was now recurring versus the traditionally lumpy earnings from fabrication projects.
“Going forward, we expect more good news from the company as it wins more contracts,” it stated.
This was on the back of the company’s recent proposal of a massive corporate exercise to raise funds of about RM1 billion, believed to be an indicator that the company was on the path for potential merger and acquisitions (M&As).
“In the near term, we understand that the company has won a contract for the Sepat marginal oilfield project, and we expect an announcement soon,” it further pointed out.
“We like Kencana Petroleum for its position as a leading Malaysian oil and gas fabricator and its ability to win local contracts,” the research firm said. “Moreover, we believe that it will be a beneficiary of the increased participation by oil and gas players in marginal fields due to its rig conversion capabilities.”
This led RHB Research to sustain an ‘outperform’ call for Kencana Petroleum with a fair value of RM2.60 per share.