Apr 19, 2010

KENCANA - Maintain Buy : AM Research

Kencana Petroleum : Secures first long term marine charter contract

We maintain our BUY call on Kencana Petroleum (Kencana) with fair value of RM2.00/share, pegged to a FY10 PE of 20x. Kencana’s wholly-owned Kencana Nautilus Sdn Bhd together with logistic provider Yinson Marine Services Sdn Bhd have secured a service contract from Petronas Carigali Vietnam Ltd for provision of offshore support vessel in Vietnam. We understand that Kencana may be utilising its second deepwater capable vessel, Gemia for this project. We estimate that the charter rate works out to US$2.50/bhp, which is 40% higher than the average rate of US$1.75/bhp. The rate, which Kencana secured for Gemia appears to rival the market’s peak in early 2008. We are excited by the strong charter rate - it would seem
that weakness in the offshore support service market has bottomed out.

Stock currently trades at an attractive CY10F PE of 17x, way below its 2007 peak of 25x. We remain confident that upcoming news flow will elevate market capitalisation of more visible O&G stocks to even higher levels.

source: AM Research