ECMLibra Oil & Gas Sector Stock Picks, April 2011


ECMLibra Investment Research continue to be Overweight on the sector as news flow continues to be heavy and very positive. There would be many more contracts to come from marginal fields, development projects (like Tapis), and deepwater developments.

Besides that, Petronas’s intention to increase drilling activity will also enhance the need for support vessels and drilling services and equipment.

On notable major shareholding changes, Employees Provident Fund was seen adding shares across the board, particularly in Petronas Chemicals, SapuraCrest, Wah Seong and KNM.

Table 1 :- Selected Oil & Gas Stocks Fair Value, Target Price & Dividend Yield

Stocks Rating Target (RM) Price (RM) Mkt Cap (RMm) EPS Growth (%) PE Ratio (x) Div Yield (%)
Petronas Gas Buy 14.14 11.50 22,755.40 9.3 15.7 5.2
MMHE Hold 5.80 6.87 10,992.00 9.4 23.7 0.4
SapuraCrest Buy 4.20 3.87 4,940.90 31.9 16.5 2.4
KNM Group Buy 3.43 2.89 2,893.20 71.4 12.6 0.4
Wah Seong Buy 2.70 2.14 1,577.10 103 15.0 2.5
Dayang Enterprise Hold 2.04 2.12 1,166.00 10.2 15.6 3.5
Alam Maritim Buy 1.31 1.05 821.50 8,164.50 11.4 0.7
Petra Perdana Trading Buy 1.10 1.06 477.10 123.1 28.2 0.4

Table 2 :- Oil & Gas Stocks Investment Merits

Stocks Investment Merits
Petronas Gas Dividend play. Good for capital preservation. Strong earnings from new transmission agreement.
MMHE Fully valued at current levels. New job awards priced in. Only on watch list for M&A activity.
SapuraCrest Burgeoning RM8.8bn orderbook translating into strong earnings. Healthy balance sheet and rising dividends. Room for more growth.
KNM Group Order book (RM4bn) and tender books growing significantly. Venturing into turnkey contracts will reduce earnings volatility Strong earnings recovery expected in FY11.
Wah Seong Tenderbook growing with several Australian projects likely to come through this year. Healthy balance sheet to support organic growth. Laggard so far in O&G rally.
Dayang Enterprise New jobs priced in and valuation stretched at these levels.
Alam Maritim Strong earnings recovery expected in FY11. Laggard so far amongst peers. Expecting vessel demand to bounce back.
Petra Perdana Company facing losses with heavy operating lease commitments coupled with low vessel utilisation. However, corporate exercise (e.g. vessel sale) may be on the cards.

Source : ECMLibra Investment Research

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