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PP 7767/09/2010(025354)

8 July 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

New s Upda te
8 July 2010

Kencana Petroleum Share Price

Fair Value
Newfield Contract Recom : Underperform

Table 1 : Investment Statistics (KENP; Code: 5122) Bloomberg: KEPB MK

Net EPS Net
FYE Revenue Profit EPS Growth PER C.EPS* P/NTA P/CF ROE Gearing GDY
July (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (x) (%)
2009 1,140.8 118.2 7.2 38.9 20.4 - 3.4 7.5 27.6 Net cash 0.6
2010f 1,188.8 131.4 8.0 11.3 18.3 8.0 3.0 12.6 15.7 Net cash 0.4
2011f 1,382.6 160.9 9.8 22.5 15.0 11.0 2.5 10.6 15.8 Net cash 0.5
2012f 1,550.0 181.9 11.0 13.1 13.2 12.0 2.0 9.3 14.7 Net cash 0.5
Main Market Listing / Non-Trustee Stock * Consensus Based On IBES Estimates

♦ Newfield contract. Kencana announced that it had been awarded a Issued Capital (m shares) 1,649.8
RM201.1m contract from Newfield Peninsula Malaysia Inc. for the Market Cap(RMm) 2,408.7
procurement and construction of wellhead platform topside, central Daily Trading Vol (m shs) 3.9
52wk Price Range (RM) 1.015-1.75
processing platform topside, living quarters and bridge for the PM329 East
Major Shareholders: (%)
Piatu Development Project located offshore Terengganu. The one-off
Khasera Baru 39.2
contract is scheduled to be delivered in stages within the 3Q 2011. Management 7.6

♦ Orderbooks. We highlight that Kencana expects to secure around

EPF 7.5

RM600-800m contracts under the PSCs’ direct assignment. Hence, with FYE Jul FY10 FY11 FY12
orderbook replenishment of around RM1-1.2bn and burn-rate of around EPS chg (%) - - -
RM300m/quarter, we expect Kencana’s orderbook to remain above Var to Cons (%) (0.5) (11.3) (8.1)
RM1.9bn going into 2011.
PE Band Chart
♦ Risks. 1) Contracts in overseas markets that have higher execution risk;
2) Rising steel cost and other cost overruns; 3) Strengthening of RM PER = 30x
against US$; and 4) Delay in contracts if crude oil price pulls back. PER = 20x
PER = 10x

♦ Maintain forecasts. No change to our forecasts for now.

♦ Valuations. While we remain positive on the long-term prospects for the

sector, we are concerned about the near-term visibility of contract flows.
We thus reiterate our Underperform call on the stock with an unchanged
fair value of RM1.27 (based on 13x FY11 PER). Relative Performance To FBM KLCI

Kencana Petroleum


Yap Huey Chiang

(603) 92802171
Please read important disclosures at the end of this report.

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8 July 2010

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE July (RMm) FY09 FY10F FY11F FY12F FYE July FY10F FY11F FY12F
Fabrication 962.8 1,041.4 1,232.6 1,400.0 Key Drivers
EPCC 178.0 147.4 150.0 150.0 New orderbook (RMm) 630.0 974.0 1,400.0
Others - - - - Yard utilisation rate (%) 62.5 72.7 81.5
Revenue 1,140.8 1,188.8 1,382.6 1,550.0

EBIT 159.0 172.9 207.1 232.0

EBIT margin (%) 13.9 14.5 15.0 15.0 Source: Company data, RHBRI estimates
Interest expense (10.4) (13.1) (13.5) (13.8)
Associates 0.1 0.4 0.4 0.5
Pre-tax profit 152.8 168.4 206.3 233.3
Tax (34.5) (37.1) (45.4) (51.3)
Eff. tax rate (%) 22.6 22.0 22.0 22.0
Minorities - - - -
Net profit 118.2 131.4 160.9 181.9
Source: Company data, RHBRI estimates

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