Barakah Offshore Petroleum Bhd
(Aug 10, 16 sen)
Maintain hold with an unchanged target price (TP) of 14 sen: We expect Barakah to continue to unveil the identities of its two other clients in this contract package win as it progressively clears the compliance hurdle. That said, Barakah’s investment thesis remains unchanged.
It needs to increase job win rates, de-gear and find a strategic partner for its KL101 vessel. Until then, Barakah remains a “hold”, with a TP of 14 sen per share, based on a one-time book value.
Following the recent announcement of the letter of award win from Enquest for the Pan Malaysia Maintenance, Construction and Modification (PM-MCM) Package A contract for 2018 to 2023, this contract now includes Sapura Energy Bhd as its client.
We understand that two new names (clients) will be subsequently unveiled to complete the client list [of four in total. The total value for this job would be in the region of RM1.3 billion to RM2.3 billion over the next five years, similar to what we have highlighted in our previous report.
This newsflow is within the market and our expectations. As such, our earnings estimates are unchanged, for we have imputed RM200 million to RM300 million job wins per annum in our model. Barakah will remain in the red in FY18. It needs to further improve its order wins, de-base its costs and de-gear to rerate.
Its KL101 vessel is burning RM40 million per annum and is the single largest cost component.
A strategic shareholder is needed to aid Barakah’s high cost structure. With that in mind, Barakah appears to appeal as an acquisition candidate. — Maybank IB Research, Aug 10