PP 7767/09/2010(025354



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)


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


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
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