2H10 would be an exciting period for the O&G industry, especially in 4QCY10, during which we expect most of the contract to be awarded, alongside the listing of MMHE, which may lead to a re-rating of the share prices of most O&G companies, which are currently trading at single digit PER valuations.
However, we do not expect to see strong quarterly performance by most O&G companies in 2H10 and would not be surprised if they reported results that are below our and the industry expectations as there was a stark shortage of new contracts late last year and in 1H10. This led to poor utilization rates and margin compression as a result of strong market competition.
We believe the industry’s fundamental earnings will recover from 2011 on the assumption that new contract awards would be out latest by 4QCY10. Alam (Buy, TP: RM2.99) and Kencana (Buy, TP:RM1.85) remain our top picks.
| Stocks | Price (RM) | Target price (RM) | Rating |
|---|---|---|---|
| Alam | 1.71 | 2.99 | Buy |
| Coastal | 2.32 | 3.77 | Buy |
| Dialog | 1.06 | 1.29 | Buy |
| Epic | 1.72 | 2.19 | Buy |
| Kencana | 1.48 | 1.85 | Buy |
| KNM | 0.5 | 0.56 | Neutral |
| P Energy | 1.35 | 1.15 | Neutral |
| P Perdana | 1.29 | 1.77 | Buy |
| Tgoff | 1.2 | 0.78 | Sell |
| WSC | 2.26 | 2.85 | Buy |
Source : OSK Research