bimbsec - oil & gas sector update - 20120507

BIMB SECURITIES RESEARCH

MARKET INSIGHT

Monday, 7 May, 2012

Sector Update

PP16795/03/2013(031743)

www.bimbsec.com.my | 1

Overweight Oil & Gas – Sector Update

Corporate Activities’ Active Month

Chiong Tong Chai [email protected] 03-26918887 ext 175

Interesting month. Several eye catching corporate exercise proposals/movements took place in April. Perdana Petroleum (PP) move to dispose of its 26.9% stake in Petra Energy is positive not only to its financial position but would in our view spark further investments by Dayang Enterprise in the former thus improving PP’s shareholdings structure and also the existing commercial tie-up between the 2 companies. Tanjung Offshore on the other-hand had proposed to dispose of its marine business for cash consideration of RM220m to Ekuinas. While we are less sanguine about the deal by Tanjung Offshore as its investors would end up holding the loss making non-marine entity, market is expecting to see another O&G IPO brokered by Ekuinas. While details remain sketchy, KNM has again approached its shareholders to raise RM200m against the backdrop that it had posted a first yearly loss of RM83m in FY11. Positive contract pipeline. April witnessed a very strong contracts related newsflow which include (i) the FID on Petronas’ first FLNG, (ii) pre-q on Angsi vessel based chemical EOR, (iii) the award of FEED contract for second regas facility and (iv) the update on the RM60bn RAPID project which is on schedule and contracts should be expected in FY13. More marginal fields but... With 22 marginal fields up for grabs, we are not overly surprised that out of the 22 shortlisted contenders, unexpected names such as Ramunia, Boustead Heavy Industries, Puncak Niaga, Daya Materials and a company under Perwaja were mentioned. Given the list of contenders, we also see high possibility of more activities within the capital market. On these backgrounds, we also expect incumbents i.e Sapura-Kencana and Dialog to have a very strong chances to bag additional RSCs. We see RSC as a good platform for local players in the context of transforming their business model from a mere service provider into an independent oil player. View and recommendation. We continue to Overweight the sector. Maintain Buy on Dayang (TP: RM2.59), Dialog (TP: RM2.71), Uzma (TP: RM2.70) while Trading Buy on Wah Seong (TP: RM2.38), Neutral on Bumi Armada (TP: RM4.65) and Sell on MMHE (TP: RM4.76).

Companies Price Market

Cap Core Net Profit (RMm) PER (x)

FY12 Div Yield

ROE Target Price

Rating

(RM) (RMm) FY11 FY12 FY13 FY11 FY12 FY13 (%) (%) (RM)

Bumi Armada 4.06 11,889.6 359.7 593.0 719.5 33.1 20.1 16.5 1.0% 25.3% 4.65 Neutral

Dayang 2.09 1,149.5 83.9 98.2 113.1 13.7 11.7 10.2 2.6% 16.6% 2.59 Buy

Dialog 2.26 5,434.0 152.3 206.7 243.0 35.7 26.3 22.4 1.7% 17.5% 2.71 Buy

MMHE 5.12 8,192.0 205.6 380.7 453.6 39.8 21.5 18.1 0.5% 13.8% 4.76 Sell

Uzma 2.05 180.4 12.1 23.8 31.7 15.0 7.6 5.7 2.0% 24.2% 2.70 Buy

Wah Seong 2.03 1,537.4 110.4 119.4 133.6 13.9 12.9 11.5 3.5% 11.1% 2.38 T. Buy

mailto:[email protected]

7 May 2012 Sector Outlook: Oil & Gas (Overweight)


Corporate Activities – April 12

Date Company Nature Remarks

03/04/2012 Petra Energy JV Entered into MOU with Baker Hughes Malaysia

to pursuit business opportunities

16/04/2012 Bumi Armada Contract Win Secured EPIC contract worth USD200m from a

subsidiary of Lukoil, it first in Russia

26/04/2012 Perdana Petroleum Proposed Disposal

Appointed manager to dispose its remaining stake in Petra Energy

30/04/2012 Kencana Petroleum Contract Win Secured EPCC contract for 2 cogeneration

plants worth RM35m from Petronas Gas

30/4/2012 KNM Corporate Exercise

Proposed rights issue to raise RM200m of cash

18/04/2012 Daya Materials JV Entered into MOU with AXIMA Concept of

France to pursuit business opportunities

23/04/2012 Tanjung Offshore Demerger Proposed to dispose of its marine business for

total cash consideration of RM220m

Contract Secured YTD – April 12

Company Contract Value

(RM’m)

SapCrest 1,143

Bumi Armada 870 Uzma 350

Dayang 210

Kencana 175

Others 174

Total 2,922

Contract Secured YTD – By Markets



On-going bidding highlights

Tender by Descriptions Potential players

ONGC Issued a tender for design, engineering, procurement, fabrication and commissioning of four wellhead platforms for the second phase of the C-series marginal field development off the country’s west coast.

Competition is keen with interest expressed by international and domestic players. Ramunia was reportedly keen to participate.

Shell Shell was reportedly considering to re-tender its St. Joseph chemical EOR contract due to commercial consideration, we are not able to confirm this development with market sources.

We highlighted the contract was supposedly to be awarded in April/May with Bumi Armada and Delcom in the race.

Petronas Carigali

Pre-Q exercise has been called for the world’s first full field vessel based chemical EOR for Angsi field. On table is a firm 5-year contract to supply a vessel to support the chemical EOR and will also include FEED as well as EPCC components. Original scheduled start-up is by the third quarter of 2013

MISC, Bumi Armada, M3nergy and surprisingly Kencana was reportedly interested as well, while Delcom which is bidding for the similar project for Shell’s St. Joseph field was not named as one of the potential contenders. There is also a possibility that MMC Oil & Gas Engineering, Water Standard and Uzma which completed the basic engineering studies for the project would participate.

Exxon Looking to award conceptual studies contract within weeks for its Guntong Enhanced Oil Recovery (EOR) exercise. The contact involves maturing of the concept for a Water-Alternate-Gas (WAG) EOR and will also include brownfield studies on the modification and tie-in to existing production facilities.

This is part of Exxon’s USD2.1bn EOR initiative. As usual local fabricators would be keen on the project.

Petronas Award for the Bukit Tua FPSO is likely to be wrapped up soon as Petronas have finally sealed a 7 year gas sale agreement with Petrogas Jatim.

In the race are M3nergy and Tanker Pacific.

Petronas Is in the process to issue out engineering studies contract for Besar field. The proposed development would have a host platform, Besar A, and a potential satellite structure, Besar B. Targeted to be awarded in 3Q.

As this FEED contract is only likely to be completed in 2QFY13, we expect EPIC contract to come after that. As usual local fabricators would be keen on the project.

Carigali Hess On tender is a gas compression platform which is expected to weigh more than 40k tonnes, include topsides, a large jacket, a bridge and associated substructures. The new production structure will be bridge-linked to an existing platform that will undergo modification in the Cakerawala field.

It was reported that there are 4 remaining contenders i.e MMHE, Kencana, Hyundai and SMOE. We believe local players to have a stronger edge versus foreign ones.

Petronas It has sanctioned the development of a 1-million-tonne-per-annum floating liquefied natural gas plant for the Kanowit gas discovery off Sarawak.

The FEED and the construction contracts were awarded to Technip-Daewoo. However, MMHE could potentially involve fabricating part of the topsides.

Petronas Awarded a FEED contract for its second liquefied natural gas regasification terminal in Sabah to US based Fluor.

We still see MMHE as the potential beneficiary for vessel conversion although there is a likelihood that the facility would be onshore centred. Other potential winners could be: Petronas Gas – regas unit’s owner/operator, MISC – floating storage unit owner, Mudajaya, Zelan and MMC Corp - power plant construction and Muhibbah Engineering – regas facility EPCC contractor.



O&G Stocks Share Price Performance

Source: Bloomberg, BIMBSec

Crude Price – Spot Brent

Source: Bloomberg, BIMBSec



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.

TRADING BUY Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain.

NEUTRAL Share price may fall within the range of +/- 10% over the next 12 months

TAKE PROFIT Target price has been attained. Fundamentals remain intact. Look to accumulate at lower levels.

TRADING SELL Share price may fall by more than 15% in the next 3 months.

SELL Share price may fall by more than 10% over the next 12 months.

NOT RATED Stock is not within regular research coverage.

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

UNDERWEIGHT The Industry as defined by the analyst’s coverage universe, is expected to underperform the relevant primary

market index over the next 12 months

Applicability of ratings

The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment

ratings 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.

Disclaimer

The investments discussed or recommended in this report not be suitable for all investors. This report has been prepared for

information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB

securities Sdn Bhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB Group

and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The

information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to

ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it

should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and

estimates included in this report constitute our judgements as of this and are subject to change without notice. BIMB Securities Sdn

Bhd accepts no liability for any direct, indirect or consequential loss arising from use of this report.

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BIMB SECURITIES SDN BHD (290163-X) A Participating Organisation of Bursa Malaysia Securities Berhad Level 32, Menara Multi Purpose, Capital Square,

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http://www.bimbsec.com.my Head of Research

The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB Securities Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the BIMB Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opin-ions and estimates included in this report constitute our judgement as of this date and are subject to change without notice..



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bimbsec - oil & gas sector update - 20120507

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