PP16832/01/2013 (031128) Malaysia Company Update 23 February 2012 Buy (unchanged) Share price: Target price: RM3.19 Wong Chew Hann, CA wchewh@maybank-ib.com (603) 2297 8688 Stock Information RM3.66 (unchanged) Description: Kencana Petroleum provides integrated engineering and fabrication of production facilities, EPCIC, hook-up & commissioning services and drilling services. Ticker: KEPB MK Shares Issued (m): 1,993.2 Market Cap (RM m): 6,358.2 3-mth Avg Daily Volume (m): 3.5 KLCI: 1560.5 Free float (%): 43.3 Major Shareholders: % Khasera Baru Sdn Bhd 31.7 EPF 11.6 Chong Hin Loon 6.2 KWAP 5.0 Key Indicators Net cash / (debt) (RM m): (203.4) NTA/shr (RM): 0.93 Net Gearing : 0.1 Historical Chart 3.5 3.0 2.5 2.0 1.5 1.0 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Performance: 52-week High/Low RM3.16RM2.17 KEPB MK Equity 1-mth 3-mth 6-mth 1-yr YTD Absolute (%) 5.3 26.6 19.0 25.1 7.4 Relative (%) 2.8 18.1 16.5 22.0 5.3 Kencana Petroleum Bags Murphy EPC contract Maintain Buy with a RM3.66 target price. The RM101m job win from Murphy is a positive start to 2012, and with peer MMHE facing yard bottlenecks, we expect Kencana, with its ample yard space, to be a major beneficiary in the fabrication space this year. We are maintaining our forecasts, having incorporated RM2b in job wins for 2012 from an estd. RM5b jobs that are expected to be rolled out across the sector. A RM101m win. Kencana has secured an engineering, procurement and construction (EPC) contract from Murphy Sarawak (Murphy) for the Patricia and Serendah offshore platforms, which form part of the SK309 field development offshore Bintulu, Sarawak. The contract value is RM101m, with projected rollout by 3Q12 for an 18-month work period. Targets RM2b new orders. We expect Kencana to reap RM18m in gross profit from this job (i.e. an 18% margin), which will largely be recognised in FY12. We are maintaining our forecasts, having incorporated a RM2b job win assumption for 2012. This is achievable, in our view, for there is an estimated RM5-6b in pipeline projects to be rolled out (Petronas Carigali s 3 centralised processing platforms (CPPs) alone are worth RM2-3b). With MMHE facing yard space constraints, Kencana, with its recently expanded yard (+40% to 240 acres), will be able to capitalise on these job flows. Strong visibility. This new win accounts for 3% of our FY12 earnings forecast. Earnings visibility is strong, and our estimates imply a 23% net profit CAGR up to FY14. Growth will come largely from more fabrication orders and a maiden contribution from its second tender-assisted rig KM-2, to be deployed in 2013. There is further upside to our forecasts, for we have yet to incorporate the potential RM20m in earnings from its 24.5% stake in FPSO Berantai, which will be on-site by mid-2012. Merger with SapCrest on track to meet 2Q12 deadline. Meanwhile, the plan to list Newco is on track to meet the April 2012 deadline. Kencana shareholders will get 1.26 Newco shares plus RM0.486 in cash for every share held. Based on our TP of RM2.52 for Newco (20x 2013 EPS), we derive a TP of RM3.66 for Kencana. Kencana Petroleum Summary Earnings Table FYE Jul (RM m) Revenue 2010A 1,090.9 2011A 1,492.6 2012F 1,793.9 2013F 2,050.0 2014F 2,255.0 EBITDA 202.3 352.6 520.9 563.9 635.4 Recurring Net Profit 136.2 223.1 320.5 356.1 414.9 Recurring Basic EPS (Sen) 10.7 12.7 17.1 19.1 22.2 EPS growth (%) 14.5 19.1 35.1 11.1 16.5 DPS (Sen) 0.9 0.0 0.0 0.0 0.0 PER 29.9 25.1 18.6 16.7 14.4 EV/EBITDA 20.2 16.1 11.2 10.0 8.4 Div Yield (%) 0.3 0.0 0.0 0.0 0.0 P/BV 5.7 4.2 3.6 3.0 2.5 Net Gearing (%) 0.5 3.4 cash cash cash ROE (%) 23.0 17.8 16.7 15.8 15.7 ROA (%) 15.8 12.7 13.8 13.9 14.3 Change in net prpfit (%) - - - Consensus Net Profit (RM m) - - 285.9 370.8 425.0 Source: Maybank IB Kim Eng Hong Kong is a sub sid iary of Malayan B anking B erh ad SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
Kencana: PE Band 25 Kencana: PBV Band 9.0 20 +1 sd: 17.3 7.0 15 10 Mean: 13.6-1 sd: 9.9 5.0 3.0 Mean: 3.7 5 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 1.0 Dec-06May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 Source: Maybank-IB Peer comparison (Calendarised) Company Mkt Cap PE EV/EBITDA P/BV Net debt/ (cash) (RM m) 2011 2012 2011 2012 (RM m) Kencana Petroleum 6,358.2 17.8 17.8 15.0 11.4 3.4 (203.4) MMHE 8,688.0 27.9 19.5 13.5 9.3 3.4 (2,085.6) Sembcorp Marine* 10,998.4 14.3 15.3 10.1 9.2 5.1 (2,907.1) Keppel Corp* 19,456.3 11.3 10.9 9.2 8.7 2.6 1,279.3 Simple average 17.8 15.8 12.0 9.6 3.6 Ex-Kencana 17.8 15.2 10.9 9.1 3.7 Sources: Company, Maybank IB, *SGD 23 February 2012 Page 2 of 5
INCOME STATEMENT (RM m) BALANCE SHEET (RM m) FY Jul 2011A 2012F 2013F 2014F FY Jul 2011A 2012F 2013F 2014F Revenue 1,492.6 1,793.9 2,050.0 2,255.0 Fixed Assets 1,504.0 1,636.0 1,768.0 1,900.0 EBITDA 352.6 520.9 563.9 635.4 Other LT Assets 437.3 437.4 437.5 437.6 Depreciation & Amortisation (66.0) (68.0) (68.0) (68.0) Cash/ST Investments 827.8 996.7 1,236.1 1,531.2 Operating Profit (EBIT) 286.6 452.9 495.9 567.4 Other Current Assets 532.0 427.5 479.6 521.4 Interest (Exp)/Inc (13.7) (36.8) (33.5) (28.7) Total Assets 3,301.2 3,497.6 3,921.3 4,390.3 Associates 0.1 0.1 0.1 0.1 One-offs 0.0 0.0 0.0 0.0 ST Debt 334.6 334.6 334.6 334.6 Pre-Tax Profit 273.0 416.2 462.5 538.8 Other Current Liabilities 611.0 485.2 552.8 606.9 Tax (49.8) (95.7) (106.4) (123.9) LT Debt 554.2 556.0 556.0 556.0 Minority Interest (0.1) 0.0 0.0 0.0 Other LT Liabilities 45.0 45.0 45.0 45.0 Net Profit 223.1 320.5 356.1 414.9 Minority Interest 0.6 0.6 0.6 0.6 Recurring Net Profit 223.1 320.5 356.1 414.9 Shareholders' Equity 1,755.9 2,076.3 2,432.4 2,847.3 Total Liabilities-Capital 3,301.2 3,497.6 3,921.3 4,390.3 Revenue Growth % 36.8% 20.2% 14.3% 10.0% EBITDA Growth (%) 74.3% 47.7% 8.3% 12.7% Share Capital (m) 1,758.2 1,868.7 1,868.7 1,868.7 EBIT Growth (%) 60.1% 58.0% 9.5% 14.4% Gross Debt/(Cash) 888.8 890.6 890.6 890.6 Net Profit Growth (%) 63.8% 43.6% 11.1% 16.5% Net Debt/(Cash) 61.0 (106.2) (345.6) (640.7) Recurring Net Profit Growth (%) 63.8% 43.6% 11.1% 16.5% Working Capital 414.3 604.4 828.4 1,111.2 Tax Rate % 18.2% 23.0% 23.0% 23.0% CASH FLOW (RM m) RATES & RATIOS FY Jul 2011A 2012F 2013F 2014F FY Jul 2011A 2012F 2013F 2014F Profit before taxation 223.1 320.5 356.1 414.9 EBITDA Margin % 23.6% 29.0% 27.5% 28.2% Depreciation 66.0 68.0 68.0 68.0 Op. Profit Margin % 19.2% 25.2% 24.2% 25.2% Net interest receipts/(payments) 13.7 36.8 33.5 28.7 Net Profit Margin % 14.9% 17.9% 17.4% 18.4% Working capital change (14.6) (21.2) 15.4 12.3 ROE % 17.8% 16.7% 15.8% 15.7% Cash tax paid (49.8) (95.7) (106.4) (123.9) ROA % 9.5% 9.4% 9.6% 10.0% Others (incl'd exceptional items) 27.7 58.9 72.8 95.1 Net Margin Ex. El % 14.9% 17.9% 17.4% 18.4% Cash flow from operations 266.2 367.1 439.4 495.1 Dividend Cover nm nm nm nm Capex (279.6) (200.0) (200.0) (200.0) Interest Cover 20.9 12.3 14.8 19.8 Disposal/(purchase) 0.0 0.0 0.0 0.0 Asset Turnover 0.5 0.5 0.5 0.5 Others (103.7) 0.0 0.0 0.0 Asset/Debt 3.7 3.9 4.4 4.9 Cash flow from investing (383.2) (200.0) (200.0) (200.0) Debtors Turn (days) 119.4 203.0 0.0 0.0 Debt raised/(repaid) 662.9 1.8 0.0 0.0 Creditors Turn (days) 154.0 205.0 0.0 0.0 Equity raised/(repaid) 0.0 0.0 0.0 0.0 Inventory Turn (days) 8.5 209.0 0.0 0.0 Dividends (paid) (8.3) 0.0 0.0 0.0 Net Gearing % 3.5 NA NA NA Interest payments 0.0 0.0 1.0 2.0 Debt/ EBITDA 2.5 1.7 1.6 1.4 Others 67.9 0.0 (1.0) (2.0) Debt/ Market Cap 0.2 0.2 0.2 0.2 Cash flow from financing 722.5 1.8 0.0 0.0 Change in cash 605.5 168.9 239.4 295.1 Sources: Company, Maybank-IB 23 February 2012 Page 3 of 5
APPENDIX 1 Definition of Ratings Maybank Investment Bank Research uses the following rating system: BUY Total return is expected to be above 15% in the next 12 months HOLD Total return is expected to be between -15% to 15% in the next 12 months SELL Total return is expected to be below -15% 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 Berhad and consequently no representation is made as to the accuracy or completeness of this report by Maybank Investment Bank Berhad 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 Berhad, 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 forwardlooking statements. Maybank Investment Bank Berhad 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 Berhad'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 cons ent of Maybank Investment Bank Berhad and Maybank Investment Bank Berhad 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. 23 February 2012 Page 4 of 5
APPENDIX 1 Additional Disclaimer (for purpose of distribution in Singapore) This report has been produced as of the date hereof and the information herein maybe subject to change. Kim Eng Research Pte Ltd ("KERPL") in Singapore has no obligation to update such information for any recipient. Recipients of this report are to contact KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law. As of 23 February 2012, KERPL does not have an interest in the said company/companies. Additional Disclaimer (for purpose of distribution in the United States) This research report prepared by Maybank Investment Bank Berhad is distributed in the United States ( US ) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Kim Eng Securities USA, a brokerdealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Kim Eng Securities USA in the US shall be borne by Kim Eng. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. This report is not directed at you if Kim Eng Securities is prohibit ed or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Kim Eng Securities is permitted to provide research material concerning investments to you under relevant legislation and regulations. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply if the reader is receiving or accessing this report in or from other than Malaysia. As of 23 February 2012, Maybank Investment Bank Berhad and the covering analyst do not have any interest in any companies recommended in this Market themes report. Analyst Certification: The views expressed in this research report accurately reflect the analyst's personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report. Additional Disclaimer (for purpose of distribution in the United Kingdom) This document is being distributed by Kim Eng Securities Limited, which is authorised and regulated by the Financial Services Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers. 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 Tel: (603) 2059 1888; Fax: (603) 2078 4194 Stockbroking Business: Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888; Fax: (603) 2282 5136 http://www.maybank-ib.com 23 February 2012 Page 5 of 5