KUCHING: Oil and gas company KNM Group Bhd (KNM) is actively exploring new oil and gas tenders overseas, including liquefied natural gas (LNG) in Australia and Papua New Guinea (PNG).AmResearch Sdn Bhd (AmResearch) in a company report cited that KNM might bid for more contracts in other countries to replenish its orderbook.
It noted that the group’s net orderbook has declined from RM2.4 billion as at September 30, 2009 to RM2.2 billion currently.
The research firm observed that KNM has just secured new orders worth RM143 million for Impress Ethanol Co Ltd’s bioethanol project in Chachaengsao, Thailand.
The project involved the engineering, procurement, construction and commisioning (EPCC) of a cassava-based bioethanol plant which will have a capacity of 200,000 litres per day. It was reported that the project was expected to be completed within 18 months.
Meanwhile, AmResearch pointed out that KNM also considered a joint venture with China’s largest oil and gas producer and supplier, China National Petroleum Corporation (CNPC), to supply valves for China’s gas and pipeline projects such as the West East Link pipeline. It also noted that CNPC was keen on the valve produced by KNM’s Berlin-based procurement equipment maker Borsig GmbH due to its track record. It stated that these valves were sourced from Schuck and Cameron.
In addition, the research firm also noted that KNM was looking to provide compressors for the gas station to pump the natural gas to the underground bunker for storage apart from the valves to CNPC.
AmResearch also noted that KNM may choose to close some overseas operations to reduce the group’s overheads if new orders remained weak.
Therefore, the research firm reiterated its neutral recommendation on the medium term outlook for KNM. It pegged its share price at RM0.82 per share based on financial year 2010 earnings estimates and price earnings of 13 times.
On the other hand, OSK Research Sdn Bhd (OSK Research) was optimistic that KNM would secure some of the oil and gas contracts in the near future. This included RM500 million to RM600 million from the Verwater Industrial Services (M) Sdn Bhd joint venture, a portion of the jobs from Saudi Aramco to Technip to build a refinery in Jubail Industry City in Saudi Arabia and some potential projects from the Gorgon liquefied natural gas (LNG) plants.
OSK Research believed that these contracts would contribute more significantly to enhance KNM’s earnings. The research firm was confident that given KNM’s global presence and the fact that crude oil was traded at above US$80 per barrel, KNM group would pick up more oil and gas contracts.
It noted that a higher oil price would make commercial sense for KNM’s customers to start up more projects, especially the non-conventional ones as the conventional production was outdated.
Hence, the research firm upgraded KNM’s rating and pegged a target price of RM0.93 per share for its stock.