Sector Update 21 September 2011 Maybank IB Research PP16832/01/2012 (029059) Largely insulated, newsflow driven We expect a confluence of newsflows and corporate activities to excite the O&G industry over the next 12 months. Domestic service providers in various parts of the value chain will continue to gain but external risk could upset the fundamental equilibrium. We see Kencana-SapCrest, MMHE, Bumi Armada seizing the spotlight in 2H with Uzma and Petra Energy enjoying a fair amount of the spillover. Action-packed, so far. The 3 major themes that we anticipated for 2011: (i) rising orderbook visibility, (ii) tactical tie-ups and strategic assets and (iii) increased corporate activities, have been playing out. Marginal field RSCs, marine vessels contract extensions, mergers, consolidation, takeovers, and capital raising activities have shaped the sector, leading to a majority of stocks outperforming the market to-date. We expect the momentum to extend into 2012 with varying intensity, driven by PETRONAS’ capex plans. Local service providers will continue to harness these opportunities. Focus will be on a deepwater project and multiple enhanced oil recovery (EOR)/rejuvenation fields with jobs for fabrication works and floating solutions in the pipeline. We see MMHE, Kencana-SapCrest and Bumi Armada as key beneficiaries with Uzma and Petra Energy reaping a decent share of the gains. Buoyant outlook but external risk looms. Global economic volatility could clip the fundamental positives and derail the values of companies under coverage. However, with the majority of the local companies on a stronger operational and financial standing, trough valuations akin to 2008 are unlikely to be revisited, in our view. Nevertheless, our stress test assessment suggests that KNM, Alam, Tj Offshore and Perdana Petroleum are more prone to downside risks. High foreign shareholding stocks like Wah Seong, Dialog, Kencana, KNM and MMHE are susceptible to selling pressure should the market turn further south. Maintain Overweight. Overall, we opine that Malaysia O&G industry is better insulated than its regional peers in terms of new project flows. Domestic projects are driven by PETRONAS, a national oil company (NOC), which would likely adopt a ‘strategic capex approach’ as opposed to ‘cyclical spending strategy’ on energy security concerns. Against this backdrop, we reiterate our Buy calls on Dialog, MMHE, PGas and Wah Seong, tangibly outperformers in 2011. Our top pick in the sector is MMHE, followed by Dialog, PGas and Wah Seong. Summary of companies (calendarised) Company Rec Price TP EPS (sen) EPS Grth (%) PE (x) DPS (sen) Yield (%) (RM) (RM) 11F 12F 11F 12F 11F 12F 11F 12F 11F 12F Alam Maritim Hold 0.79 0.85 4.9 9.5 NM 93.2 16.0 8.3 0.7 0.7 0.8 0.8 Dialog Buy 2.18 3.35 6.5 7.5 21.6 15.7 33.5 28.9 5.1 5.9 2.4 2.7 EPIC AO 3.09 3.10 32.2 33.8 3.9 4.8 9.6 9.1 7.0 7.5 2.3 2.4 Kencana NR 2.53 NR 13.8 17.5 7.1 26.9 18.4 14.5 0.6 0.7 0.3 0.3 KNM Sell 1.30 1.19 5.0 11.9 -62.4 137.2 25.9 10.9 1.8 1.8 1.4 1.4 MMHE Buy 6.10 8.00 25.5 29.9 27.0 17.1 23.9 20.4 4.4 4.0 0.7 0.7 Perdana Petroleum Hold 0.64 0.76 1.3 2.7 NM NM 50.2 23.6 2.0 2.0 3.1 3.1 Petronas Gas Buy 13.40 14.10 72.3 72.3 60.6 0.0 18.5 18.5 50.0 50.0 3.7 3.7 SapCrest NR 3.94 NR 22.1 24.0 24.6 8.4 17.8 16.4 8.5 10.5 2.2 2.7 Tj. Offshore Hold 0.78 0.98 (0.5) 3.0 NM NM NM 25.8 0.0 0.0 0.0 0.0 Wah Seong Buy 1.97 3.10 18.7 21.8 155.1 16.9 10.6 9.0 8.0 11.0 4.1 5.6 Source: Maybank-IB, AO = Accept Offer, NR = Non Rated Oil & Gas Overweight (unchanged) Wong Chew Hann, CA [email protected](603) 2297 8688 Chong Ooi Ming [email protected](603) 2297 8676
Transcript
Sector Update 21 September 2011
Maybank IB Research PP16832/01/2012 (029059)
Largely insulated, newsflow driven
We expect a confluence of newsflows and corporate activities to excite the O&G industry over the next 12 months. Domestic service providers in various parts of the value chain will continue to gain but external risk could upset the fundamental equilibrium. We see Kencana-SapCrest, MMHE, Bumi Armada seizing the spotlight in 2H with Uzma and Petra Energy enjoying a fair amount of the spillover.
Action-packed, so far. The 3 major themes that we anticipated for 2011: (i) rising orderbook visibility, (ii) tactical tie-ups and strategic assets and (iii) increased corporate activities, have been playing out. Marginal field RSCs, marine vessels contract extensions, mergers, consolidation, takeovers, and capital raising activities have shaped the sector, leading to a majority of stocks outperforming the market to-date.
We expect the momentum to extend into 2012 with varying intensity, driven by PETRONAS’ capex plans. Local service providers will continue to harness these opportunities. Focus will be on a deepwater project and multiple enhanced oil recovery (EOR)/rejuvenation fields with jobs for fabrication works and floating solutions in the pipeline. We see MMHE, Kencana-SapCrest and Bumi Armada as key beneficiaries with Uzma and Petra Energy reaping a decent share of the gains.
Buoyant outlook but external risk looms. Global economic volatility could clip the fundamental positives and derail the values of companies under coverage. However, with the majority of the local companies on a stronger operational and financial standing, trough valuations akin to 2008 are unlikely to be revisited, in our view. Nevertheless, our stress test assessment suggests that KNM, Alam, Tj Offshore and Perdana Petroleum are more prone to downside risks. High foreign shareholding stocks like Wah Seong, Dialog, Kencana, KNM and MMHE are susceptible to selling pressure should the market turn further south.
Maintain Overweight. Overall, we opine that Malaysia O&G industry is better insulated than its regional peers in terms of new project flows. Domestic projects are driven by PETRONAS, a national oil company (NOC), which would likely adopt a ‘strategic capex approach’ as opposed to ‘cyclical spending strategy’ on energy security concerns. Against this backdrop, we reiterate our Buy calls on Dialog, MMHE, PGas and Wah Seong, tangibly outperformers in 2011. Our top pick in the sector is MMHE, followed by Dialog, PGas and Wah Seong.
2Q 2011 results round up. Dialog sprang a positive surprise in terms of earnings delivery while Petronas Gas (PGas) and Wah Seong delivered to expectation. As anticipated, offshore marine vessel (OMV) operators (i.e. Alam Maritim, Perdana Petroleum and Tj Offshore) saw rebound in earnings, fueled largely by higher vessel utilization and lower dry-dock expenses. On the flip side, the large caps like MMHE and Bumi Armada as well as KNM disappointed. Earnings were below expectations, hit mainly by elevated operating costs.
2Q 2011 results roundup: Analysis of companies
Sector Results vs. MBB-IB’s expectations
Comments
Alam Maritim In line Alam returned to profitability in 2Q (Net profit: RM7m) but still saw red in 1H (Net loss: RM0.5m). Offshore Marine Vessels (OMVs) powered the operating turnaround, on improving utilization rates (from 55% in 1Q to 70% in 2Q). This was offset by losses at the underwater operations (-RM3m owing to absence of works) and 50% pipelay operations (-RM12m due to start-up losses).
Dialog Above Results surpassed expectations. The out-performance came from stronger-than-expected associate earnings (i.e. 30%-Kertih Terminals).
EPIC In line 1H earnings of RM27m (+11% YoY) accounted for 49% of our full-year forecast. Improved YoY earnings was due to stronger O&G activities at its petroleum supply base (KSB) and fabrication unit (Mushtari) while port throughput volume recovered.
KNM Below Results were sub-par as 1H net profit of RM30m (-45% YoY) on weaker QoQ net profit (-43% to RM11m) made up a mere 21% of our full-year forecast. The performance was dragged down by cost overruns and high operating expenses, reflecting poor cost management.
MMHE Below Net profit fell 39% QoQ and 28% YoY to RM79m in 1QFY11. Earnings were impaired by high operating expenses due to low billing recognitions and higher taxes.
Perdana Petroleum
In line Perdana returned to the black in 2Q with a stronger net profit of RM8m (1Q: RM8m loss), aided by higher utilization rates and a RM6m gain from the accretion of refundable deposits (RM5m) and vessel sale (RM1m). Ex-one offs, core net profit was RM3m.
Petronas Gas In line 1QFY11 net profit of RM387m (+45% QoQ; +1% YoY) accounted for 36% of our Apr-Dec full-FY forecasts. Gross profit-wise, throughput services (i.e. gas processing & transportation) grew 2% YoY, fueled by higher gas processing fees (+13%) but transportation fees fell 10% YoY (due to gas supply interruption). Utilities division reported a 25% fall in earnings.
Tj Offshore Above 2Q results were a positive surprise. TOFF returned to profitability (RM7m) following two consecutive quarters of losses. The underlying QoQ strength was fueled by higher OMV earnings and reduced losses at its UK-based process equipment unit; Citech and domestic-Tanjung CSI.
Wah Seong In line 1H results tracked to expectation despite a weaker QoQ performance. 2Q net profit fell a sequential 40% due to weaker contributions from its pipe-coating operations. This was expected, for WSC recognised higher contributions from the Gorgon job in 1Q, as some works were accelerated in the Jan-Mar period after experiencing delays in 2H 2010.
PETRONAS NA Reported a strong 1QFY11 results, with higher revenue (RM73b; +11% QoQ; +25% YoY), EBIT (RM31b; +40% QoQ; +42% YoY) and net profit (RM19b; +83% QoQ; +57% YoY). Underlying growth was driven by higher selling prices across its product range but offset by a stronger RM vs. USD. It made an RM3b gain from the divestment of Cairn India. Stripping that off, core net profit growth was still an impressive 59% QoQ and 36% YoY.
Source: Maybank IB, Companies
Oil & Gas
21 September 2011 Page 3 of 12
Action-packed, so far
Contract flows in the industry have been encouraging to-date, reflective of the steady oil price environment and increased capex spending by PETRONAS (refer to Table 1). Among others:
PETRONAS has unveiled its USD20b investment blueprint for the Refinery and Petrochemical Industrial Development (RAPID) in Pengerang, Johor.
It will also embark on a RM15b gas development project (North Malay basin) with its partners to tap gas reserves in a cluster of marginal fields offshore Terengganu, Peninsular Malaysia.
Several Risk Sharing Contracts (RSC) (i.e. Berantai, Balai, Sepat, Cendor Phase 2) have been announced to unlock marginal field prospects. Consequently, orders for a few floating solutions (i.e. FPSO, FSO, FSU) have been made to support these projects.
A RM10b deepwater tank terminal by a Dialog-led consortium in Pengerang has kicked off while a RM18m refinery and tank terminal project in Pengerang have been made known.
There has been a series of contract extensions/renewals in the offshore marine vessels (OMVs) segment since this year after having experienced weak dayrates, low utilization and high idle time in the past.
Topside structural maintenance services (RM802m) and offshore fabrication jobs (RM1.4b) are some of the notable projects announced to-date.
Corporate activities on the rise. Notwithstanding the improved visibility of order book, there has also been an increase in corporate activities and corporations seeking tactical ties-ups and strategic assets so far this year:
Kencana-SapCrest-Petrofac partnership to develop Berantai RSC.
Dialog-Roc Oil-Petronas Carigali JV to undertake Balai RSC.
SapuraCrest and Kencana’s merger proposal to create an RM11b market cap Newco.
Dialog, Kencana and SapCrest building up war chests (via private placement, debt and rights issue) to support their marginal field projects and future expansion programs.
SapCrest’s acquisitions of Clough’s (Australia) marine construction business for AUD127m and a 50% stake in Labuan Shipyard for RM25m.
Wah Seong’s proposal to list its O&G outfit, Wasco in 2012, which was subsequently deferred.
Bumi Armada’s listing in Jul 2011 at an IPO price of RM3.03/ share (market cap: RM8.87b).
EPIC to be taken private with an offer price of RM3.10/share.
Oil & Gas
21 September 2011 Page 4 of 12
Table 1: Notable projects announced in 2011
Projects Types of Project Estimated Value Beneficiaries
What’s next? We expect the strong contract flow momentum to extend into 2012 as PETRONAS’ capex continues to be deployed in the domestic space. It has spent RM10b in 1QFY11 (+40% YoY), on track to meet its RM50-60b p.a. commitment for 2011-15.
Where are the near-term prospects? We foresee opportunities in the:
(i) offshore fabrication,
(ii) floating solutions,
(iii) pipe-coat and pipelay works, and
(iv) structural maintenance/repair jobs (Refer to Table 2).
Local service providers set to continue harnessing the domestic opportunities. Focus will be largely on a deepwater project, multiple EOR/rejuvenation fields, several Joint Development Areas (JDAs) in Malaysia-Thailand and shallow water fields. Local players will continue to capitalize on these opportunities.
Oil & Gas
21 September 2011 Page 5 of 12
Who are the potential winners …
We rate MMHE highly in clinching the coveted fabrication job for a tension-leg-platform (TLP) for the Malikai deepwater field.
Kencana will likely share in the majority of the fabrication structures and floating solutions works with MMHE. We expect these jobs to be announced in 2H.
We rate Bumi Armada highly in securing at least one of the two domestic FPSO projects (Belud, Dahlia-Teratai) which are currently under bidding stages. We think that Bumi Armada is keen to participate in the upcoming EOR programmes (i.e. Angsi, St Joseph) planned for 2012.
We also identify Uzma, Petra Energy, SapCrest and Wah Seong as potential contract winners (i.e. chemical supply, platform upgrade, pipe-lay/coat) for the various chemical EOR projects.
Corporate exercises ongoing. MMC and PGas will list their gas utilities unit (Gas Malaysia) by end-2011. MMHE’s acquisition of Sime Darby’s Pasit Gudang yard for RM393.5m is expected to be completed by 1Q 2012. We do not rule out Kencana undertaking a strategic tie-up with an international operator with deepwater capabilities.
Table 2: Upcoming projects identified
Opportunities Types of Project Estimated Value Beneficiaries
New deepwater block - Malikai field
Fabrication of TLP + FPSO RM1b – RM2b MMHE, Kencana
New open shallow water blocks (22) Fabrication of 65 – 70 fixed platforms NA MMHE, Kencana, Sapcrest
2 new tender-assisted rigs RM450m
Cakerawala & Muda Gas fields Platform EPCC, pipe tie back to Kertih NA
MMHE, Kencana, Sapcrest, WSC, Alam, Maritim
Brownfield rejuvenation programs - Tapis CPP, upgrade of existing wellhead
platforms, pipeline replacement works RM1b – RM2b MMHE, Uzma, Petra
Energy EOR programs - Seligi, Guntong, Semangkok, Irong
Barat, Tabu & Palas fields
Fabrication of offshore structures, floating structures
RM6b – RM8b
MMHE, Kencana, Dialog
- Angsi field (PM) chemical EOR - FPSO solution NA Bumi Armada, Kencana
- Chemical supply Uzma
- St. Joseph, South Furious & Barton fields (SB) chemical EOR
- FPSO solution - Chemical supply NA
Bumi Armada, MMHE Uzma
- Temana field (SK) Water Alternating Gas EOR
- Platform upgrade NA
Dayang, Petra Energy, Alam, WSC
- 30km of pipelines WSC, SapCrest
- Baram Delta field (SK) rejuvenation programme (HTHP well)
New CPP & 6-7 satellite platforms upgrade NA
MMHE, Kencana, SapCrest (HUC), WSC (pipe-coat)
- Semarang field (SB) rejuvenation CPP and 2 satellite platforms, pipelines NA Kencana-SapCrest (HUC, fabrication), Dayang, Petra Energy (maintenance)
Floating solutions
- Belud field (Talisman) FPSO solution NA MMHE, Kencana, Bumi Armada, MISC
- Dahlia and Teratai fields (PETRONAS-Hess)
FPSO solution NA MMHE, Kencana, Bumi Armada, MISC
- West Desaru (Petrofac) Early Production System and MOPU NA Kencana, SapCrest
Tank terminals expansion program EPCC (Tj Langsat) NA Dialog
Sources: Various, Maybank-IB
Oil & Gas
21 September 2011 Page 6 of 12
Valuations
Majority of O&G stocks are currently off their peak valuations following the convergence of newsflows (i.e. contracts and corporate exercises) passing in 1H. Performance-wise, all stocks under our coverage, except for the vessel operators (i.e. Alam, Tj Offshore, Perdana Petroleum) and process equipment manufacturer (KNM), have outperformed relative to the market (KLCI-30) for the year to-date.
KLCI-30 (1.4) (3.9) (2.7) 0.3 (5.5) Alam (2.5) (31.3) (36.4) (29.4) (22.2) Underperformed, hit by under-utilization of vessels, absence of
underwater projects in 1H. Recovery is underway in 2H.
Dialog (4.0) (13.6) 66.9 118.0 35.2 Outperformance underpinned by the Pengerang tank terminals project and Balai RSC project announced in Aug.
EPIC 9.7 27.0 31.3 55.3 27.0 Outperformed. General offer of RM3.10/shr supports price performance.
Kencana 0.7 (1.1) 37.4 71.1 12.9 Outperformed. Bagging the Berantai RSC in 1Q was a positive. Newco’s offer price of RM3.00/ shr (1.26 Newco share + RM0.486 cash) caps downside potential.
KNM (11.8) (48.3) (26.6) (18.7) (52.5) Worst performer to-date, on operational setbacks. High operating cost crimped margins. Unlikely to recover in the immediate term.
MMHE (0.6) (6.6) 42.6 - 9.5 Outperformed. Proposed acquisition of Sime Darby’s Pasir Gudang yard, which is one of the Economic Transformation Programme’s entry point projects in the O&G sector will offer long-term earnings growth visibility. The exercise is expected to be completed by 1Q 2012.
Perdana Petroleum 6.3 (35.2) (11.7) (32.3) (35.8) Underperfomed YTD. Downside risk is limited, valuations are near rock-bottom but the stock lacks catalyst to excite. Headwinds remain – needs to deal with 8 ageing vessels, its 30% stake in Petra Energy and bond settlement.
Petronas Gas 3.7 20.1 21.4 26.2 21.6 Outperformed. Beneficiary of the Lekas regas project, which is scheduled to commercialize by Jul 2012.
SapCrest (3.1) 7.6 33.2 68.2 32.9 Outperformed. Bagging the Berantai RSC in 1Q and its proposed merger with SapCrest announced in 2Q are two positives.Newco’s offer price of RM4.60/shr (1.96 Newco share + RM0.6854 cash) caps downside potential.
Tj Offshore (20.2) (37.5) (52.8) (59.9) (52.2) Underperfomed, similar to KNM YTD. Operating momentum has recovered but further earnings visibility is required. Cost management remains a concern at this juncture.
Wah Seong (7.3) (9.8) 0.5 (0.5) (1.9) Marginally underperformed. Strong 1Q results were a positive. The proposed listing of Wasco was to have been a catalyst. However, the listing deferment took some of the shine away.
Source: Maybank-IB Buoyant outlook. Against the backdrop of major capex spend by PETRONAS, newsflows should continue to support share prices and towering valuations in 2H with varying intensity, with the latter reflective of the capex upcycle state of the industry. The focus in 2H, in our view, will largely be on EOR projects, fabrication works and floating solutions.
But, external risks loom. While the sector outlook remains upbeat, external risk could weigh on the fundamental positives. The risk of another global recession would see high volatility in the equity and commodity markets, eclipsing fundamental strength.
Recessionary impact. A volatile commodity price environment would upset capex projection and spending. Depressed oil prices of below USD80/bbl (dated Brent) could trigger a fall in investment, projects and contracts. Marginal field projects in our view, would be at risk and could be one of the first few projects to be deferred for economic reasons. We reckon USD70/bbl to be the breakeven price for marginal projects.
Oil & Gas
21 September 2011 Page 7 of 12
Stress testing valuations. We have academically tabulated trough valuations of companies under our coverage, comparing the current state to the situation during the 2008 Global Financial Crisis. Except for a few, we believe that most of the companies under our coverage are more resilient now than in 2008. The main differentiating factors between now and then (in 2008) are the growing importance of oil & gas related activities to raise the country’s output from the conventional fields and the sector having commanded a higher standing today as an ETP focus. These are further supported by PETRONAS’ RM300b capex spend outlined for the 5 years to 2015.
Estimated trough valuations
2008 Crisis 20-Sep-11 Maybank-IB Comment
Name Trough P/BV
Net gearing
Price P/BV
Net gearing
Trough price
% downside
(%) (%) (Est) (%)
Alam Maritim 0.7 135.1 0.79 1.1 96.0 0.65 (17.7) Operations have turned around but OSV sector remains fragile.
We estimate Alam’s trough valuation at RM0.65 (1.1x book).
Dialog 1.9 cash 2.18 7.8 cash 1.78 (18.3) Cash rich, strong balance sheet, sound management. Low probability of falling to its trough valuations in 2008.
However, execution of marginal field(s) is a risk, which could depress valuations.
We estimate Dialog’s trough valuation at RM1.78 (6x book, 53% of TP).
EPIC 0.4 cash 3.09 1.3 cash 3.10 NM Supported by GO price of RM3.10/shr, which equates to current PBV.
KNM 0.9 51.9 1.30 3.0 31.7 1.19 (8.5) Currently below 2008's P/BV trough valuations. Softer orderbook today vs. 2008, and cost management is an issue.
We estimate KNM’s trough valuations at RM1.19 (0.65x book).
Kencana 2.70 cash 2.53 5.4 cash - - Stronger business model vs. 2008. Risk is on execution of marginal fields project(s).
Price performance supported by merger Offer Price of RM3.00/ shr (4.2x book).
MMHE NA NA 6.10 3.9 cash 6.00 (1.6) We estimate MMHE’s trough valuations at RM6.00 (4.0x book)
Perdana Pet 0.6 65.8 0.64 0.9 42.3 0.55 (13.8) Currently trades at 2008 trough valuations, on a perceived weaker business model.
Owns 30% of Petra Energy (vs. 100%). Has bond settlement issue to contend with. Utilisation is still weak.
We estimate Perdana’s trough valuations at RM0.55 (0.5x book).
PetGas 2.3 cash 13.40 3.1 cash 13.42 0.1 A defensive stock. Cash rich, sound balance sheet. PETRONAS, a major shareholder, is a positive.
Unlikely to trade below 2008 trough ratings. We estimate PetGas’ trough valuations at
RM13.42 (3.0x book).
SapuraCrest 0.8 25.6 3.94 5.2 cash - - Stronger business model vs. 2008. Price performance supported by merger
Offer Price of RM4.60/ shr.
Oil & Gas
21 September 2011 Page 8 of 12
Estimated trough valuations (continued)
2008 Crisis 20-Sep-11 Maybank-IB Comment
Name Trough P/BV
Net gearing
Price P/BV
Net gearing
Trough price
% downside
(%) (%) (Est) (%)
Tj Offshore 0.7 80.6 0.78 0.6 80.2 0.64 (18.0) Currently below 2008 trough P/BV. Cost management an issue. Current utilization is weaker vis-à-vis 2008.
We estimate TOFF’s trough valuations at RM0.64 (0.5x book).
Wah Seong 0.8 46.3 1.97 1.3 13.7 1.46 (74.1) Based on 2008 trough P/BV of 0.8x, WSC would be valued at RM1.08.
We estimate WSC’ trough valuations at RM1.46 (1.1x book).
Source: Maybank-IB
Stocks that passed the test. Valuations for Dialog, EPIC, Kencana, MMHE, PetGas and Wah Seong should not fall below 2008 trough ratings as fundamentals have improved with stronger business models and balance sheets.
4 companies raise red flags. While most companies in our coverage are trading at above trough valuations (measured on P/BV and PER basis), three companies – KNM, Perdana Petroleum and Tj Offshore have now fallen below the 2008 trough valuations. Perdana Petroleum’s valuations are on par vis-à-vis 3 years ago but with weaker financials. Alam is also a concern, on lower interest cover and higher operating leverage valuations vis-à-vis during the 2008 crisis.
High foreign shareholding is a risk as market turns bearish. Wah Seong (16%), Dialog (8%), KNM (19%), MMHE (9% ex-Technip) and SapCrest (7% ex-Seadrill) are more susceptible to sell-down pressure in the event that the global markets turn more bearish.
Foreign shareholding level
Company Foreign shareholding (%)
Alam Maritim <1%
Dialog 8%
EPIC <1%
KNM 19%
Kencana 11%
MMHE 9% (ex-Technip which has an 8% stake in MMHE)
Perdana Pet <1%
Petronas Gas 3%
SapCrest 7% (ex-Seadrill, which has as 23% stake in SaCrest)
Tj Offshore <1%
Wah Seong 16%
Source: Maybank-IB
Maintain Overweight. Overall, we think Malaysia’s O&G industry is better sheltered than its regional peers. Domestic projects are driven by PETRONAS, a national oil company (NOC), which would likely adopt a ‘strategic capex approach’ as opposed to ‘cyclical spending strategy’ on energy security concerns. We reiterate our Buy calls on Dialog, MMHE, PGas and Wah Seong.
Oil & Gas
21 September 2011 Page 9 of 12
Valuations of O&G stocks (under Maybank IB coverage) Alam Dialog EPIC KNM Kencana MMHE Perdana PGas SCrest TOFF WSC
Maybank Investment Bank Research uses the following rating system:
BUY Total return is expected to be above 10% in the next 12 months
HOLD Total return is expected to be between -5% to 10% in the next 12 months
SELL Total return is expected to be below -5% in 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.
Some common terms abbreviated in this report (where they appear): Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings BV = Book Value FV = Fair Value PEG = PE Ratio To Growth CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date EV = Enterprise Value PBT = Profit Before Tax
Disclaimer This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.
The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Bhd and consequently no representation is made as to the accuracy or completeness of this report by Maybank Investment Bank Bhd and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Maybank Investment Bank Bhd, its affiliates and related companies and their officers, directors, associates, connected parties and/or employees may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice.
This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward-looking statements. Maybank Investment Bank Bhd expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events.
This report is prepared for the use of Maybank Investment Bank Bhd's clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of Maybank Investment Bank Bhd and Maybank Investment Bank Bhd accepts no liability whatsoever for the actions of third parties in this respect.
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Published / Printed by
Maybank Investment Bank Berhad (15938-H)
(A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur
