OSK Research maintains Buy on Kencana

KUALA LUMPUR: OSK Research maintains its Buy call on Kencana Petroleum and it has upgraded its target price to RM2.04 based on higher PER valuation of 16x CY11 EPS (previously RM1.46 based on a PER of 14x FY11 EPS).

It said on Friday, March 26 that historically, Kencana share price has even traded above 25x and it believes giving a slightly higher PER valuation of 16x is fair given the expected better prospects of the company.

“Among the other listed O&G companies, we believe Kencana stands a better chance in securing new contracts soon given the nature of its business coupled with its international presence, delivery track record and availability of yard space,” it said.

OSK Research said to date, it still has a strong orderbook of about RM2 billion, which should last it for the next 12 months.

Finally, Kencana is also one of the few O&G companies that had a net cash position of RM332.8 million as at 2QFY10 (versus RM93.0 million as at 1QFY10).

To recap, the research house said Kencana’s 2QFY10 results were within expectations. Again, this quarter had minimal new fabrication contracts from Petronas and its PSC contractors, resulting in Kencana’s yard only 50% utilised.

Also, there was delay in the commencement of KM1 to June 2010. It downgraded its FY10 forecast by 7% to factor in the lower 1H10 numbers but it upgraded the FY11 forecast by 9% to reflect the brighter prospect of the company.