BIMBSec - Sector Update - Oil &Gas - 20120613

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BIMB SECURITIES RESEARCH

MARKET INSIGHTWednesday, 13 June, 2012

Sector UpdatePP16795/03/2013(031743)

www.bimbsec.com.my | 1

Overweight Oil & Gas – Sector Update Moment of Truth

Chiong Tong [email protected] 03-26918887 ext 175

Quarterly results largely below expectations. Out of the 6 companies under ourcoverage, 5 (Bumi Armada, Dayang, Dialog, MMHE and Wah Seong) registeredbelow expectation quarterly results (please refer to summary) whilst only Uzmaperformed within our expectation. In terms of our forecasts, we have downgradedall the 5 that performed below expectation.

The moment of truth. Up to May, a total of RM5.2bn worth of 20 contracts hasbeen secured by listed players. However, it is clear that projects from the domestic

front are still way below expectation with only RM2.9bn allocated. This trend is alsoconsistent with Petronas’ total capex spending of only RM8.7bn in the 1Q which isway below the average RM60bn p.a required to hit the 5-year spendingcommitment of RM300bn. The reasons for the slower contract flows could betraced down to delay and possibly finalization of annual budget allocation in the1Q12. However, we remain positive that contract flows to pick-up in the 2H with thefocus on marginal field, floating solution, maintenance and fabrication spaces.Already both the number and value of contracts clinched in May have improved to 6valued at RM2.3bn, the strongest month YTD. The effects of this slower contractawards are noticeable on O&G player’s share prices which underperformed thebroader market, particularly the big players which are the prime proxies for thisdomestic upcycle.

Hydrocarbon prices. A combination of receding geopolitical risk and rising economicheadlines as well as worry on the growing imbalances in supply-demand havecaused spot Brent to decelerate at a very fast pace, downed by 22% from this yearhigh to USD97/barrel (last seen in Oct-11) with the Asian benchmark LNG pricecontracted by 19%. However, as of now, forecasts and comments by energyagencies continue to lead us to believe sudden price collapse in still far from realityalso we are still witnessing robust activities within the O&G value chain and have yetto see any announcements of delay or cancellation of investments as a result of crude price movements.

View and recommendation. Banking on our positive expectations in the second half of this year, we continue to Overweight the sector. Maintain Buy on Bumi Armada(TP: RM4.44), Dayang (TP: RM2.43), Dialog (TP: RM2.78), Uzma (TP: RM2.70) whileTrading Buy on Wah Seong (TP: RM2.28), and Sell on MMHE (TP: RM4.37) .

Companies PriceMarket

CapCore Net Profit (RMm) PER (x)

FY12 DivYield

ROETargetPrice

Rating

(RM) (RMm) FY11 FY12 FY13 FY11 FY12 FY13 (%) (%) (RM)

Bumi Armada 4.00 11,714 359.7 564.8 718.5 32.6 20.7 16.3 1.0% 24.3% 4.44 Buy

Dayang 2.03 1,117 83.9 92.3 109.2 13.3 12.1 10.2 2.5% 15.7% 2.43 BuyDialog 2.37 5,703 152.3 176.5 213.0 37.4 32.3 26.8 1.4% 15.2% 2.78 BuyMMHE 5.13 8,208 205.6 349.7 389.6 39.9 23.5 21.1 0.4% 12.8% 4.37 SellUzma 2.05 180 12.1 23.8 31.7 15.0 7.6 5.7 2.0% 24.2% 2.70 Buy

Wah Seong 1.84 1,426 110.4 115.0 130.9 12.9 12.4 10.9 3.6% 10.7% 2.28 T. Buy

mailto:[email protected]





13 June 2012 Sector Outlook: Oil & Gas (Overweight)


Latest Quarter ResultsCompany YoY (%) QoQ (%) Against Our

Estimates Earnings

Estimates Remarks

Bumi Armada ↑ ↓ Below ↓ Contract award delayDayang ↓ ↑ Below ↓ Weather

Dialog ↓ ↔ Below ↓ Lower marginMMHE ↓ ↑ Below ↓ No new significant contract YTD

Uzma ↑ ↑ Inline ↔ Contracts execution progressing wellWah Seong ↓ ↓ Below ↓ No new significant contract YTD +

margin contraction

Corporate Activities – May 12

Date Company Nature Remarks

07/05/2012 Bumi Armada Contract WinSecured 5 year charter contract worthUSD65m from a Mexican company

08/05/2012 SapuraKencana Contract Win Secured EPCC contract worth RM460m forSerendah field from Murphy Sarawak

08/05/2012 PerisaiAsset

AcquisitionEntered into purchase agreement for a Jack-Up Drilling Rig for USD208m

14/05/2012 Bumi ArmadaAsset

AcquisitionTaken delivery for two large AHTS from SankoSteamship

15/05/2012 SapuraKencana Contract WinSecured an EPC contract worth RM48.9m fromPetrofac for the refurbishment, life extensionand conversion of a MOPU

22/05/2012 SapuraKencana Contract WinSecured contract worth RM157m from OriginEnergy Resources Ltd for the Origin OtwayPhase 3 Development

24/05/2012 SapuraKencanaContractExtension

Secured an extension from Petronas for itsexisting integrated transportation andinstallation contract for another year worthRM1.3bn

25/05/2012 Alam Maritim JV Entered into JV with Globe Marine Services toventure into Middle East O&G sector

25/05/2012 Daya Materials MOUSigned MOU with Hydra Energy which isinvolved in development of small oil fields

28/05/2012 Alam Martim Contract Win

Secured a 18 month + 12 month chartercontract for its work barge worth RM125.6mfrom ExxonMobile

31/05/2012 Ramunia MOU Entered into an MOU with Sew InfrastructureLimited for collaboration for O&G projects





Contract Secured YTD – May 12

CompanyContract Value

(RM’ m)

SapuraKencana 3,318.9

Bumi Armada 1,065Uzma 350

Alam Maritim 240.6

Dayang 210

Others 23.6

Total 5,208.1

Contract Secured YTD – By Markets

On-going bidding highlights

Tender by Descriptions Potential players Petronas A joint bid from Ilk Construction and

MMHE is understood to have emerged asthe frontrunner during the commercialround for the engineering, procurementand construction of the 6k tonne CentralDiyabekir wellhead platform.

The news is consistent with MMHE’sfocus to bid for more contracts in theregion. We see the joint bid as acredible one and see good chance forthe partners to secure the job.

Petronas Petronas Carigali was reportedlycommenced negotiation with MISC for alease contract for its Angsi field’s vesselbased chemical enhanced oil recoveryproject. Initially the contract wassupposed to run for a fixed 5 years period.Total cost for the project is estimated atUSD1bn and major contract componentscan be break down into vessel, operationand maintenance and supply of chemicals.

Subsequent from this, the status fora formal tender for the project isnow become unclear. Previously,Bumi Armada, M3nergy, Kencana,MMC Oil & Gas Engineering, WaterStandard and Uzma werereportedly interested toparticipate in the project.

ExxonMobil ExxonMobil has started conceptualstudies on its Guntong enhanced oilrecovery project in the Malay basin off Peninsular Malaysia. Study workscommenced last month with the aim of wrapping up work by the end of this year.

Main beneficiaries would befabricators i.e MMHE andSapuraKencana. EPCC contract is liketo be awarded in FY13.

CarigaliHess CarigaliHess Operating Company hasinvited bids for the transportation andinstallation of two wellhead platformsrequired for its Malaysia-Thailand JointDevelopment Area Block A-18 gas project.

SapuraKencana





O&G Stocks Share Price Performance

Source: Bloomberg, BIMBSec

Crude Price – Spot Brent

Source: Bloomberg, BIMBSec

80%

85%

90%

95%

100%

105%

110%

115%

120%

125%

130%

12/30/2011 1/29/2012 2/28/2012 3/29/2012 4/28/2012 5/28/2012

Bumi Armada

Dayang

Dialog

MMHE

Uzma

Wah Seong

FBM KLCI

10

15

20

25

30

35

40

45

30

50

70

90

110

130

11/14/08 11/14/09 11/14/10 11/14/11

Price (LHS) Vol - 180 D (RHS)





DEFINITION OF RATINGSBIMB Securities uses the following rating system:

STOCK RECOMMENDATION

BUY Total return (price appreciation plus dividend yield) is expected to exceed 10% in the next 12 months.TRADING BUY Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain.NEUTRAL Share price may fall within the range of +/- 10% over the next 12 months TAKE PROFIT Target price has been attained. Fundamentals remain intact. Look to accumulate at lower levels.TRADING SELL Share price may fall by more than 15% in the next 3 months.SELL Share price may fall by more than 10% over the next 12 months.NOT RATED Stock is not within regular research coverage.

SECTOR RECOMMENDATIONOVERWEIGHT The Industry as defined by the analyst’s coverage universe, is expected to outperform the relevant primary

market index over the next 12 monthsNEUTRAL The Industry as defined by the analyst’s coverage universe, is expected to perform in line with the relevant

primary market index over the next 12 monthsUNDERWEIGHT The Industry as defined by the analyst’s coverage universe, is expected to underperform the relevant primary

market index over the next 12 months

Applicability of ratingsThe respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investmentratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of thecoverage do not carry investment ratings as we do not actively follow developments in these companies.

DisclaimerThe investments discussed or recommended in this report not be suitable for all investors. This report has been prepared forinformation purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMBsecurities Sdn Bhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB Groupand their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. Theinformation herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken toensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and itshould not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions andestimates included in this report constitute our judgements as of this and are subject to change without notice. BIMB Securities SdnBhd accepts no liability for any direct, indirect or consequential loss arising from use of this report.

Published by

BIMB SECURITIES SDN BHD(290163-X) A Participating Organisation of Bursa Malaysia Securities Berhad Level 32, Menara Multi Purpose, Capital Square,

No. 8 Jalan Munshi Abdullah,

50100 Kuala Lumpur

Tel: 03-2691 8887, Fax: 03-2691 1262 Kenny Yee

http://www.bimbsec.com.my Head of Research

http://www.bimbsec.com.my/



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BIMBSec - Sector Update - Oil &Gas - 20120613