Fair value: RM5.15
AmResearch said it was maintaining its “buy” call on Bumi Armada Bhd with an unchanged standard operating procedure (SOP)-based fair value of RM5.15 per share, which implied a financial year 2014 forecast (FY14F) price earnings (PE) of 23x - a 15% premium to oil and gas (O&G) stocks with market valuations above RM1bil.
Upstream reported recently that Bumi Armada was leading the race to supply Eni with a floating production, storage and offloading (FPSO) vessel for its East Hub project in Block 15/06 off Angola, although a deal had not been finalised.
The report said that Bumi had the edge over its only remaining rival, Milan-based Saipem, although nothing was certain until state oil player Sonangol rubber stamped the proposed award. AmResearch said one key factor in Bumi’s emergence as current favoured bidder was Saipem’s perceived move away from the FPSO business as the Italy-based operator sold its Firenze FPSO off Italy to operator Eni.
In terms of local content, it said it was unclear what Eni’s strategy was for the East Hub FPSO, adding that the Paenal yard was the only facility that was able to handle FPSO-related work.
It added it is believed that there had been no formal approach by Bumi Armada or Saipem to use the Porto Amboim site.
Paenal’s shareholders are Sonangol, Daewoo Shipbuilding & Marine Engineering and SBM Offshore - which is speculated to be hoping to snare the East Hub job if a deal with Bumi did not materialise. Eni’s East Hub development is focused on exploiting the Cabaca North and Cabaca Southeast discoveries, out of which first oil is set to flow in 2016 or 2017.
It said the stock was now trading at an attractive FY14F PE of 18x, or 10% below its peers’ 20x.
KEPPEL LAND LTD (Singapore)
By Maybank KE Research
Target price: S$4.60 (RM11.96)
KEPPEL Land Ltd (Kepland)’s share price has plummeted by 13.3% since the announcement of its third quarter 2013 results on Oct 16, under-performing the Straits Times Index, which saw a mere 1.7% decline in the same period.
Nevertheless, Maybank KE Research said it was maintaining its target price (TP) of S$4.60 (RM11.86).
This is premised on a 25% discount to revalued net asset value (RNAV), which suggested a highly attractive upside of 46%.
KepLand’s reduced exposure to the Singapore residential segment is manageable, in the analyst’s view.
KepLand is due to report its financial year 2013 (FY13) results on Jan 22.
Kepland Land Ltd expects a fourth quarter profit after tax and minority interests (PATMI) of approximately S$240mil, which includes a SG$149mil net gain from the sale of its stake in Jakarta Garden City.
More pertinently, Maybank KE Research said it would be looking out for sustained home sales momentum in China.
It said some of KepLand’s peers were in the process of divesting Singapore-based commercial assets (for instance OUE Bayfront and Westgate Tower).
Maybank KE Research said it thought this was a sign of capital values peaking and if KepLand succeeded in divesting its one-third stake in MBFC Tower 3 this year, it said it believed the sale would be positive for the share price.
Results aside, it said it appeared that the operational metrics for the fourth quarter 2013 would be more pertinent.
In particular, Maybank KE Research said it would be looking out for sustained home sales momentum in China and it expected KepLand to announce sales of 700-800 units for the fourth quarter, which would take full-year home sales in China to 3,800-3,900 units, a vast improvement from the 1,650 units sold in 2012. On the other hand, it added that sales progress in Singapore, mainly from The Glades at Tanah Merah, were expected to be lacklustre.
By Affin Research
Target price: RM1.54
PETRONAS announced that the Kapal, Banang and Meranti (KBM) cluster fields, offshore Peninsular Malaysia, commenced its first oil production on Dec 16.
The KBM cluster was developed and operated by a joint venture (JV) company between Coastal Energy and Petra Energy under a risk service contract since June 2012.
The KBM cluster is an eight-year development with Kapal being in its first development and production phase.
The Kapal field facility consists of one mobile offshore production unit (MOPU), one storage tanker with approximately 600,000-bbl capacity, one drilling rig with an attached well bay module and two flexible flow lines.
The initial production rates from the cluster are over 10,000 barrels per day (bpd) with peak production reaching 13,000 bpd.
While Affin Research said it was generally positive on the commencement of first oil production from KBM cluster fields, it noted that the commencement date was slightly behind its earlier target of August-September 2013.
It said the JV company would start receiving capital expenditure (capex) reimbursement after the delivery of first oil but the accounting profit recognition (payment of remuneration fee) may only kick in the second half of 2015.
Overall, Affin Research said it believed that the positive news from KBM cluster fields was largely priced in – Petra Energy now was trading at 24x calendar year 2014 (CY14) earnings per share (EPS), a substantial valuation premium to other comparable small cap oil and gas (O&G) companies of between 10-12x.
While Affin Research said it was generally positive on the prospects of Malaysia’s O&G industry and Petra Energy’s ability to secure sizeable contracts, it noted that the group had an uneven track record in terms of project execution and profitability.
It recommended investors to take profit and only accumulate again at lower entry levels and/or when Petra Energy started to deliver stronger and more sustainable quarterly earnings. It said key risks to its negative view on Petra Energy were higher-than-expected number of new contract wins and stronger-than-expected improvements in quarterly results.