KENCANA (FV RM3.60 - BUY) 1HFY12 Results Review: Consistent as Ever

Kencana’s 1HFY12 results were within our estimates as the company  delivered another consistent  robust  quarter,  attributed to  the recognition of more fabrication works, better yard utilization and higher contribution from drilling services as well as offshore diving support services.  The numbers were also boosted by contributions from newly acquired  Allied Marine & Equipment SB. Maintain Buy, at the  existing fair value of RM3.60. This stock remains as one of our top picks in the O&G sector apart from Dialog.

Within expectations. The 1HFY12 results were above consensus but within our expectations, making up 59% and 54% of consensus and our FY12 forecasts.  In true form,  Kencana  once  again delivered another consistently good quarter, with its results boosted  by the recognition of more fabrication works, better yard utilization and higher contribution from drilling services as well as offshore diving support services. Although its 2QFY12 revenue of RM545.8m was down by a slight 4.2% q-o-q, net profit ticked up 3.3% q-o-q to RM86.3m. In terms of YTD comparison, both its 6-month cumulative revenue and net profit of RM1,115.7m and RM169.9m were  higher by 61.8% and 65.0% respectively, mainly contributed by Allied Marine & Equipment SB (AME), an underwater services company which it acquired in July 2011. This acquisition comes with a profit guarantee of RM40m but we gather that AME can  exceed  the amount  stated. AME,  incorporated in 1988, has undertaken jobs in Malaysia, Indonesia, Vietnam, China and India over the past 3 years. It currently has about 3 vessels under its stable.

Strong performance and delivery. We have always liked Kencana’s strong performance and delivery track record, which ultimately also translates into healthy earnings for the company, as  can be  seen from its historical quarterly results.  We believe  that the company’s orderbook has ballooned to more than RM3.0bn, which is expected to keep it busy over the next 2 years.

Maintain Buy. Our fair value for Kencana remains at RM3.60, based on the existing PER of 23x FY12 EPS. The stock remains as one of our top picks for the O&G sector  apart from Dialog.

Source: OSK188