PP 7767/09/2010(025354

)

Malaysia

23 June 2010

Corporate Highlights
Sector Upda te

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

23 June 2010 Recom : Neutral (Maintained)

MARKET DATELINE

Oil And Gas
SOGT Back In The Spotlight

Table 1 : Oil And Gas Sector Valuations Fair Price FYE value (RM/s) Dialog EPIC Kencana SapuraCrest^ Wah Seong P Gas^ Petra Perdana KNM Sector Avg Sector Avg(EX P Gas) ^ FY10-11 valuations refer to those of FY11-12 Jun Dec July Jan Dec Mar Dec Dec 1.07 1.81 1.47 2.23 2.26 9.86 1.44 0.51 (RM/s) 1.23 2.72 1.52 2.16 2.38 10.71 1.15 0.49

EPS (sen) FY10 6.4 26.9 10.2 16.6 16.1 62.6 6.8 2.9 FY11 9.3 27.2 11.7 18.3 18.3 64.4 12.2 4.9

EPS growth (%) FY10 -3.4 7.9 42.9 35.7 23.1 31.6 -31.1 -24.1 19.8 11.4 FY11 45.4 1.1 15.0 10.3 14.0 2.9 79.9 69.7 12.4 26.2 16.8 6.7 14.4 13.4 14.1 15.8 21.3 17.8 15.1 14.1

PER (x) FY10 FY11 11.6 6.6 12.5 12.2 12.3 15.3 11.8 10.5 13.4 11.1

P/NTA (x) FY10 4.2 0.9 2.9 2.0 2.8 3.1 0.8 8.2

P/CF (x) FY10 14.6 4.7 10.7 5.8 4.9 10.6 1.6 14.5

GDY (%) FY10 3.3 5.2 0.5 3.1 2.8 6.8 1.4 3.9

Rec OP OP MP MP MP MP UP UP

SOGT back in the spotlight. We highlight that the long-delayed Sabah Oil & Gas Terminal (SOGT) construction contract has reopened for submission of bids. The tender will close next week. Nine bidders have been shortlisted including Kencana and Dialog. The contract is expected to be awarded in Sep or Oct and will be for a period of two years, i.e. for completion in 2013. Bigger project. We understand from Kencana’s management that the project’s size has doubled since the original tender more than a year ago due to more detailed engineering design and equipment specifications. We note that the earlier estimates for the project’s cost were in the region of RM1.5bn. Recall that the SOGT involves a receiving terminal located in Kimanis, Sabah, which will be the landing point for oil and gas produced from Sabah’s offshore deepwater fields. Given the significant size of the project, we believe the SOGT may include some processing facilities to produce natural gas for Petronas Gas’ new IPP in Kimanis. Most of the crude will still be piped down to Petronas’ LNG complex in Bintulu, Sarawak via the Sabah-Sarawak Gas Pipeline (SSGP) that is currently being built by a consortium comprising Dialog and India’s Punj Lloyd. We note that the SSGP was originally targeted for completion by Mar 2011 but work was also delayed on Petronas’ request, likely due to delays in the SOGT. New catalyst for the sector. We believe the anticipation of the SOGT will be a catalyst for Dialog and Kencana, two of the shortlisted bidders. Dialog clearly has the edge in our view given its expertise in constructing tank terminals both in Malaysia and Singapore, as well as managing the facilities (in Kertih and Tanjung Langsat Port). Kencana also has the fabrication expertise although some of the technical expertise will have to come from its foreign partner. Underlying conditions still uncertain. We believe the industry is still facing some uncertainty on contract flows as the near-term direction of crude oil prices remains unconvincing. Trading sentiment may drive stocks like SapuraCrest, KNM and Petra Perdana but we prefer to remain cautious at this time. Nevertheless, we are more positive on the longer-term earnings visibility for O&G service providers as reserves will still need to be replenished and global economic recovery drives demand. We thus maintain our Neutral stance on the sector for now. Our top pick is Dialog (OP, FV = RM1.23).
Please read important disclosures at the end of this report.

Table 2. Basis For Fair Value Estimates Valuation Basis Target PER of 15x FY06/11, premium to the sector benchmark due to good management and robust balance sheet. EPIC Target FY12/11 PER at 10x to factor in flatter growth and smaller market cap. Kencana Target FY07/11 PER at 13x, in line with the sector benchmark. KNM Target FY12/11 PER at 10x to factor in higher earnings risk. Petra P’dana Target FY12/11 PER at 10x for marine, plus share of Petra Energy’s FV at 9x, to factor in higher earnings risk. PetGas DCF SapCrest Target FY01/12 PER at 13x, in line with the sector benchmark. Wah Seong Target FY12/10 PER at 13x, in line with the sector benchmark. Source: RHBRI Company Dialog

Yap Huey Chiang (603) 92802171 yap.huey.chiang@rhb.com.my

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23 June 2010
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 (previously known as RHB Sakura Merchant Bankers). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or 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 construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction. “Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports. This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel. The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues. 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. RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. securities, subject to the duties of confidentiality, will be made available upon request. Additional information on recommended

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