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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
MARKET DATELINE

Kencana Petroleum Share Price


Fair Value
:
:
RM1.46
RM1.27
Newfield Contract Recom : Underperform
(Maintained)

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

FBM KLCI

Yap Huey Chiang


(603) 92802171
Please read important disclosures at the end of this report.
yap.huey.chiang@rhb.com.my

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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

IMPORTANT DISCLOSURES
This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
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be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
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may from time to time have an interest in the securities mentioned by this report.

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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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