KUCHING: Kencana Petroleum Bhd (Kencana Petroleum) is on track to achieve further profit growth provided that its proposed acquisition of Allied Marine and Equipment Sdn Bhd (AME) materialises.
GUIDED TOUR: Photo shows Kencana Petroleum’s group chief executive officer, Datuk Mokhzani Mahathir (right) accompanying Perak Menteri Besar, Datuk Seri Zambry Abdul Kadir (second right) touring the Kencana Petroleum’s fabrication yard. – Bernama photo
According to OSK Research Sdn Bhd (OSK Research) the figure should be achievable since AME had successfully achieved RM202.8 million in revenue and RM37.8 million in profit after tax (PAT) last year.
“Kencana Petroleum proposed to acquire 100 per cent of AME, whose principal activities included the provision of offshore diving and underwater related services such as the inspection and repair and maintenance of oil and gas (O&G) structures or pipelines,” observed Jason Yap, an analyst at OSK Research.
“This acquisition also comes with a profit guarantee of RM40 million. The entire exercise is expected to be completed by the third quarter of this year. We view this acquisition positively as it would help Kencana Petroleum to expand vertically,” the analyst added.
AME was incorporated in 1988 and it had undertaken jobs in Malaysia as well as in Indonesia, Vietnam, China and India over the past three years. Currently, it has three vessels under its stable and was expecting a new one to be built soon.
The analyst also stated that 149.3 million new shares of Kencana Petroleum were issued at RM2.68 per share as its purchase consideration.
“This price was determined based on five days volume weighted average market price. The vendors, Worldclass Inspiration Sdn Bhd and Allied Asset Holdings Sdn Bhd will then cumulatively own about 7.5 per cent in Kencana Petroleum,” he said.
Further, Yap underlined that the profit guarantee meant that AME was priced at 10 times forward price earnings ratio (PER), a significant discount to the 24.4 times forward PER implied in Kencana Petroleum’s new shares issued at RM2.68 per share thus making the deal lucrative for Kencana Petroleum.
He pointed out that this acquisition would enable Kencana Petroleum to strengthen its reputation for being a fully integrated offshore service provider; enabling the company to establish a strong foothold in the subsea services as well as deepwater segment – at the same time, leveraging on AME’s customers and expand its revenues with higher margins.
“Our FY12 (financial year 2012) earnings are upgraded by 13 per cent to incorporate the earning contribution from the underwater services. Our fair value for Kencana Petroleum has also been upgraded to RM3.17 per share (previously RM3.05 per share) based on the existing PER of 23 times FY12 EPS (earnings per share) following our 13 per cent FY12 earnings upgrade as well as after incorporating the eight per cent earnings dilution from the new shares issue. Kencana Petroleum still remains one of our top picks for the O&G sector,” Yap said.
The analyst also remarked, “Going forward, we are expecting the O&G industry to improve, especially with more new O&G contract awards in the pipeline waiting to be announced.”