Kencana registers strong profit, future uptrend – Analysts
Posted on June 28, 2011, Tuesday
STRONG OUTLOOK: Besides having a consistent delivery track record, Kencana is making good progress in transforming into an integrated oil and gas service provider. Since the beginning of the year, Kencana has secured RM787 million worth of fresh contracts.
KUCHING: Kencana Petroleum Bhd’s (Kencana) nine-month financial year 2011 (9MFY11) net profit of RM159 million came within expectations, making up 78 per cent of the financial year FY11 forecasts of RM211 million.
According to OSK Research Sdn Bhd (OSK Research), the third quarter (3Q) FY11 results also improved 11.5 per cent quarter-on-quarter (q-o-q) and 69 per cent year-to-date (YTD).
The boosts were contributed by the full three-month contribution from MKR–1, recognition of more fabrication works secured since April 2010, better yard utilisation, lower expenses, better cost management and the fabrication of more higher margin products.
A separate but concurring research report by AmResearch Sdn Bhd (AmResearch) stated that group’s 3QFY11 net profit rose 12 per cent q-o-qlargely due to the engineering, procurement, construction, installation and commissioning (EPCIC) segment, which registered a nine per cent increase in billings and 0.4 per cent point increase in net margin to 12 per cent.
OSK Research observed, “We note that there are not many oil and gas stocks which investors continue to have strong faith in, and this is reflected in their share prices. However, Kencana belongs to the minority as it continues to be among the favorite stocks in investors’ portfolios.
“Besides having a consistent delivery track record, Kencana is making good progress in transforming into an integrated oil and gas service provider, which has put it together with SapuraCrest in the forefront of marginal oilfield developments in Malaysia,” it deduced.
In OSK Research’s view, Kencana’s progress would not stop at that juncture because logging in experience from the Berantai gas field might see the company venturing into another marginal oilfield in the coming years.
AmResearch noted, “Since the beginning of the year, Kencana has secured RM787 million worth of fresh contracts, including an estimated RM200 million engineering, procurement and construction (EPC) works for the Berantai marginal field – for which the group has a 25 per cent equity stake in the risk-sharing contract.
“These (contracts) account for 40 per cent of the group’s targeted new orders worth up to RM2 billion for this calendar year. With the new orders secured thus far, we estimate that Kencana’s outstanding order book has risen by five per cent to RM2.3 billion.”
The group’s order book prospects were still bright, given Petronas’ spending programme of RM300 billion over the next five years, which included enhanced oil recovery and marginal field jobs.
It was understood that Kencana might be involved in the bidding of two other marginal fields later this year.
There was also talk of mergers and acquisitions in the form of additional joint ventures for Kencana in offshore construction services following the group’s proposed RM400 million acquisition of subsea service provider Allied Marine & Equipment Sdn Bhd.
In wrapping up their respective reports, the research houses stated their derived fair values of Kencana’s stock with OKS Research maintaining its pegging at RM3.17 per share while AmResearch’s value also remained unchanged at RM3.40 per share.
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