Kencana Petroleum Bhd
Jan 5, RM2.53

AMRESEARCH (JAN 3) BUY: Kencana is on the way to securing a process equipment contract from the Sepat marginal field off Terengganu, Upstream Online reported recently. Petrofac announced that it has secured a US$280 million (RM860 million) contract with Petronas Carigali covering work on the Sepat offshore early production system, with the first oil expected before end-2011.

Local partners supporting Petrofac on the Sepat project are Kencana, which will provide the processing equipment for the mobile offshore production unit, and Bumi Armada, which will supply and install the floating storage and offloading facility. Sepat is only the second of the three marginal field projects which Kencana has been reported to be involved in. The first marginal field involves Cendor, also off Terengganu, in which Kencana is expected to be building two offshore platforms. The third involves the Berantai gas field in Block PM 309 in Terengganu.

Hence, we expect an accelerated pick-up in Kencana’s outstanding order book of RM1.9 billion currently when these jobs are officially announced. We have already incorporated new order assumptions of RM1.5 billion to RM1.8 billion for FY2011F/13F.

CIMB RESEARCH (JAN 4) OUTPERFORM: We are encouraged by a report on Petrobras’ invitation to SapuraCrest to submit a bid for a pipelay barge supply contract. While it is still early days to talk about a potential bottom line boost, the contract, if secured, would enlarge the company’s revenue base and open the doors for local companies with offshore support assets to venture into Brazil.

SapuraCrest owns three pipelay barges. Currently, SapuraCrest controls 70% of Malaysia’s installation of pipelines and facilities segment, with competition coming from McDermott, Hyundai, Global, Nippon Steel, Saipem and Swiber.

Should SapuraCrest emerge as one of the winning bidders, it would blaze a new trail for Malaysian companies with offshore support assets and expand the company’s revenue base.

SapuraCrest’s overseas revenue contribution has risen from 18% in FY2007 to 30% in FY2010 and is expected to hit 40% to 50% in three years.
We maintain our EPS forecasts but raise our target price from RM3.30 to RM3.95, the highest in the market. We now attach a 20% premium to our 14.5 times target market PER, given SapuraCrest’s superior growth.

JobsDB operates the leading online recruitment network in Hong Kong, Singapore, Indonesia and Thailand. It also ranks second and third in the Philippines and Malaysia respectively, and has a presence in nine Asean countries. JobsDB’s revenue and Ebitda are forecast at HK$320 million and HK$120 million respectively for CY2010. The company is expected to have HK$70 million in cash upon the completion of the acquisition. The acquisition will enable JobStreet to build upon its existing international footprint and increase its exposure in other more promising regions.

Based on the estimated HK$70 million cash which JobsDB is expected to end up with on the completion of the acquisition, SEEK will be buying JobsDB at about 22.1 times CY2010 EV/Ebitda. This compares with JobStreet’s 16.5 times FY2010 EV/Ebitda. JobStreet’s share price has appreciated some 50% over the last three months, making what we thought was an already expensive stock even pricier. The stock is now trading at 20 times FY2011 PER, which is the highest valuation since its IPO in 2005.

HONG LEONG INVESTMENT BANK (JAN 5) BUY: Mudajaya’s latest market cap of RM1.8 billion implies that the stock is not only trading below our estimated FY2011 PER of 12 times for the construction outfit, but also ignoring the lucrative Indian IPP project altogether. This is despite the conclusion of  Security Commission Malaysia’s investigation without further action from the authority. Our SOP valuation of RM6.54 suggests that there is a 51% upside for the stock.

Upon full commercial operations of the power plant by 2013, Mudajaya should be able to realise an average annual earnings of RM170 million at the associate level. Thus, with zero implied value on the Indian IPP, investors are in a position to benefit from a recovery in share price as management regains credibility post the SC investigation. The current power plant will most likely be expanded by two times 360mw upon the completion of Phase 2 in 2013, providing a potential boost to future earnings.

Our house view expects the Malaysian construction sector to grow by 8% this year and projects planned in the ETP, 10MP and various corridor developments are expected to be conceptualised and rolled out soon. Mudajaya should be well positioned to clinch some sizable orders.

PPB’s share price has remained flat, despite a 10% drop in Wilmar’s share price since Dec 4, 2010. We believe PPB’s price may not be sustainable as Wilmar is its largest asset and largest profit centre, contributing 82% of PPB’s core net profit in FY2011.

Reported EPS will fall in FY2011 due to lower exceptional gains of about RM202 million from the impending deemed dilution in PPB’s stake in FFM Bhd, by virtue of Wilmar’s subscription of 20% of enlarged FFM for RM378 million cash. In FY2010, PPB reaped a RM838 million gain from the sale of its sugar refining business.

PPB needs to conserve cash to pay for the potential acquisition of 20% of Wilmar’s flour operations in China.

We like PPB’s conservative management but downgrade the company from “hold” to “sell” on valuation grounds.

ECM LIBRA (JAN 5) BUY: Media Prima’s share price hit a 23-month high of RM2.70 yesterday. We believe that it is beginning to dawn on investors how robust its 2010 earnings will be. We understand 2010 TV and newspaper adex growth will be in the mid teens y-o-y against our assumption of 10% y-o-y for TV adex growth and a mere 5% y-o-y for newspaper adex growth.

We understand from the company and have verified with media buyers that 1QFY2011 TV adex is poised to grow by low double digits y-o-y. This is very respectable, given the lack of adex-friendly events this year, save for maybe the 14th general election. We note that historically gross total adex growth during quarters with general elections surged by more than 20% y-o-y.

Ascribing an unchanged 18 times one-year forward PER, we upgrade our target price on Media Prima from RM2.72 to RM3. We estimate that should Media Prima employ a net DPR of 75%, investors can expect  another eight sen net DPS or 3% net dividend yield (3QFY2010: four sen net DPS). Recall that Media Prima revised its net DPR policy from 25% to 50% to 25% to 75% in 3QFY2010.

This article appeared in Capital page, The Edge Malaysia, Issue 840, Jan 10-16, 2011