Tuesday, 20 March, 2012

BIMB SECURITIES RESEARCH Market Insight

PP16795/03/2012(029624)

Overweight
Oil & Gas – Sector Update
Expecting Contract Momentum to Pick Up
Momentum to pick up. At the close on the 2 months 2012, value of contracts
secured and announced by listed players was relatively strong with
cumulative amount of slightly below RM2bn mark of which RM856m or 43%
was domestic contracts. We remain positive that contract flows will pick up
considerably as most of the contracts are currently under tendering process.
In terms of winners, the merged entity, Sapura/Kencana sped ahead the rest
with total contract secured of RM1.2bn so far.

Contract pipeline remains positive. Contract pipeline remains strong and

robust with Petronas recently echoed its 5-year capex commitment target of
RM300bn, in line with its focus to beef up its domestic portfolio to arrest the
declining production and from its recent corporate presentation total
domestic hydrocarbon production declined 4.6% vis a vis previous FY.
Contracts are likely to flow from EOR, marginal fields, regasification facilities
and petrochemicals related projects

International jobs as well. With global O&G new investments expected to hit
the record of USD545bn this year, we see some of the domestic players to
have a good chance in securing additional jobs while making a more
prominent presence in the global scene. Particularly, we see pockets of
opportunities within the fabrication and floating solution segments offered by
strong activities within the region ie. Indonesia, Thailand, Vietnam and India.

Mixed results. Recent corporate results under our coverage were mixed. All
said, MMHE and Dialog underperformed while Bumi Armada and Uzma were
in-line with Wah Seong as the sole ourperformer. As for our earnings forecast
for FY12, we have downgraded Dialog’s by 13% while upgraded Bumi
Armada’s by 25bps.

View and recommendation. We continue to Overweight the sector on the

Chiong Tong Chai
chiongtc@bimbsec.com.my
03-26918887 ext 175
back of expected strong domestic story amid healthy global E&P spending
that could potentially add window of opportunities to domestic players.
Maintain Buy on Bumi Armada (TP: RM4.49), Uzma (RM2.96), Trading Buy on
Wah Seong (RM2.38) and Sell on MMHE (RM4.76).

Market Core Net Profit FY12 Div Target

Companies Price PER (x) ROE Rating
Cap (RMm) Yield Price
(RM) (RMm) FY11 FY12 FY13 FY11 FY12 FY13 (%) (%) (RM)
Bumi Armada 4.28 12,534 359.7 571.9 666.0 34.8 21.9 18.8 0.9% 24.5% 4.49 BUY
Dialog 2.27 5,458 152.3 206.7 243.0 35.8 26.4 22.5 1.7% 17.5% 2.27 BUY
MMHE 5.35 8,560 205.6 380.7 453.6 41.6 22.5 18.9 0.4% 13.8% 4.76 SELL
Uzma 2.00 160 12.1 23.7 31.6 13.3 6.8 5.1 2.2% 28.7% 2.96 BUY
Wah Seong 2.01 1,522 110.4 119.4 133.6 13.8 12.7 11.4 3.5% 11.1% 2.37 TRD. BUY

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20 March 2012 Sector Outlook: Oil & Gas (Overweight)

Oil price factor. Concerns over the supply security had driven crude price higher as market
continue to confer high risk premium on price, with Brent advanced by almost 13% year to
date to USD125 with short term gauge as measured by net long bet on Nymex continue to
point towards strong price at least for the near future. This is supported by strong forward
market price, Dec-12 delivery priced at USD120. Nevertheless, we continue to believe
Petronas’ domestic capex spending would continue to be strong even if oil price is to adjust
back to USD90 level on the ground that its investments are more for strategic reasons.

Corporate Activities – Feb 12

Date Company Nature Remarks

Increased JV company’s paid up to RM1m for

03/2/2012 Daya JV
tendering of contracts in Sabah.
Proposed to acquire 51% in Atama Resources for
03/02/2012 Wah Seong Acquisition USD25m under a 2-stage scheme, stage 1 has
been completed.
Completed rights issue exercise – oversubscribed
08/02/2012 Dialog Cash call
by 65.01%.
Business Announced cessation of business operation for a
10/02/2012 Tanjung Off.
liquidation UK subsidiary with an estimated cost of £6.2m.
Announced multiple proposals which involve
Corporate rights issue, issuance of exchangeable bonds and
13/02/2012 SAAG
restructuring convertible securities to restructure debt
obligations.
Secured a 3+1+1 contract worth RM125m from
14/02/2012 Dayang Contract
Talisman to provide topside maintenance services.
Secured 5 years contract worth RM350m from
16/02/2012 Uzma Contract Petronas Carigali for provision of well testing
equipment and services.
Announced incorporation of 2 subsidiaries,
Business
20/02/2012 Dialog Pengerang LLNG SB and Pengerang Terminal (Two
incorporation
) SB.
SapCrest/
20/02/2012 Asset acquisition Announced investment in Berantai FPSO
Kencana
Secured EPC contract for Patricia and Serendah
22/02/2012 Kencana Contract
fields worth RM101m from Murphy Sarawak.
Secured fabrication contract for Tapis R
29/02/2012 Kencana Contract
substructure worth RM74m from EMEPMI.

Contract Secured YTD – Feb 12 Contract Secured YTD – By Markets

Company Contract Value

(RM)
SapCrest 981m
Uzma 350m
Dayang 210m
Kencana 175m
Bumi Armada 155m
Alam Maritim 115m
Total Value 1.99bn

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20 March 2012 Sector Outlook: Oil & Gas (Overweight)

Biding Highlights

Tender by Descriptions Potential players

Hess Tender has been issued for the
engineering, procurement and
construction of a four-legged wellhead
platform, called Bumi B. The facility
need to be delivered and installed in
Block A-18 gas project in the Gulf of
Thailand early 2014, 50-50 own by Hess
and Petronas Carigali.
Competition is likely to be
keen as besides Malaysian
players i.e MMHE and
Kencana, there are also
international bidders vying
for the job.

Murphy Has approached the market for supply Usual contenders include
of an FSO. The deal requires players to MISC, Bumi Armada,
supply an Aframaz-sized FSO with M3Nergy and Ramunia.
deployment targeting in 4Q 2013 which
we believe the contract will likely be
awarded in 2Q-3Q 2012. The vessel will
have to process up to 45k bbl of liquids
per day and storage capacity of 400k to
700k. The lease has a relative long
tenure of between 10-15 years.

Shell For its vessel based CEOR for St. Joseph Bids received from Bumi
field. Shell has on offer a contract for Armada and Delcom led
the engineering, procurement, consortium (subsidiary of
construction, installation and Deleum Bhd)
commissioning of a CEOR vessel with
capacity to handle 10,000 barrels of
water and chemical injection during
the first 12 months of the pilot phase
from late 2013. The contract is worth in
the region of USD300m for the
combined vessel and O&M
components.

ONGC Tender has been issued by India’s
ONGC for EPC of four wellhead
platforms for the B-127 marginal field.
Tenders will be closed early April and
the facilities are scheduled for
completion between end-13 and April-
14
The tender was reportedly
attracting good response
from local and international
yards from the US, South
Korea, Australia, Middle East
and Malaysia (reportedly
Ramunia).

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20 March 2012 Sector Outlook: Oil & Gas (Overweight)

O&G Stocks Share Price Performance

Source: Bloomberg, BIMBSec

Crude Price – Spot Brent

Source: Bloomberg, BIMBSec

Net Long Speculative Position on NYMEX… indicating strong short term positive price expectation

Source: Bloomberg

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20 March 2012 Sector Outlook: Oil & Gas (Overweight)

DEFINITION OF RATINGS
BIMB Securities uses the following rating system:

STOCK RECOMMENDATION
BUY Total return (price appreciation plus dividend yield) is expected to exceed 10% in the next 12 months
OUTPERFORM The stock is expected to perform ahead of the market in the next 12 months
TRADING BUY The stock is expected to outperform the market in the next 3 months
NEUTRAL The stock is expected to perform in line with the market in the next 12 months
TRADING SELL The stock is expected to underperform the market in the next 3 months
SELL An expected price depreciation of more than 10% in the next 12 months

SECTOR RECOMMENDATION
OVERWEIGHT The Industry as defined by the analyst’s coverage universe, is expected to outperform the relevant primary market index
over the next 12 months
NEUTRAL The Industry as defined by the analyst’s coverage universe, is expected to perform in line with the relevant primary
market index over the next 12 months
UNDERWEIGHTThe Industry as defined by the analyst’s coverage universe, is expected to underperform the relevant primary market
index over the next 12 months

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are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do
not carry investment ratings as we do not actively follow developments in these companies.

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Tel: 03-2691 8887, Fax: 03-2691 1262 Kenny Yee
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