Top Story : Kencana – Going into IPF Outperform
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- While contract flow has been slow since early 2009, the company now expects to be awarded sizeable contracts given the pick-up in E&P activities stemming from rising demand for energy. Given the orderbook replenishment of around RM1-1.2bn by 4Q 2010 and burn-rate of around RM300m/quarter, we expect Kencana’s orderbook to remain above RM1.9bn going into 2011. With the upgrade in the Lumut yard (i.e. tonnage handling capability increased to 30,000 tonnes from 20,000 tonnes previously) nearing completion, we believe Kencana stands a good chance of securing higher-margin deepwater jobs.
- Recently, Kencana secured a 1+1 contract worth RM33m to provide an offshore support vessel to Petronas Carigali Vietnam. We understand that the 8k AHTS (KPV Gemia), which Kencana took delivery two weeks ago, will be deployed for the contract. The contract sum suggests that an average long-term charter rate of around US$1.63/HP/day vs. spot charter rates of US$2.1/HP/day.
- Recall in Jan 2010, a US$70m IPF contract was awarded to Global Offshore, in which Kencana is planning to have 45% equity participation, higher than the 30% local content requirement. We understand that Kencana is expected to invest around RM63m for the 45% equity stake in Global Offshore which owns the DLB 264, the pipelay barge that will be used to perform work for the above contract.
- No change to our forecasts. Nevertheless, we highlight potential upside to FY11-12 earnings projections arising from stronger orderbook replenishment stemming from overseas contracts and demand for deepwater structures as well as stronger contribution from its marine division.
- Maintain Outperform and fair value of RM1.88.
RHB Equity 360° (Kencana; Technical: Maybank)-20/04/2010
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