BIMB SECURITIES RESEARCH

MARKET INSIGHT
PP16795/03/2013(031743)

Wednesday, 13 June, 2012

Sector Update

Overweight

Oil & Gas Sector Update

Moment of Truth
Quarterly results largely below expectations. Out of the 6 companies under our coverage, 5 (Bumi Armada, Dayang, Dialog, MMHE and Wah Seong) registered below expectation quarterly results (please refer to summary) whilst only Uzma performed within our expectation. In terms of our forecasts, we have downgraded all the 5 that performed below expectation. The moment of truth. Up to May, a total of RM5.2bn worth of 20 contracts has been 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 also consistent with Petronas total capex spending of only RM8.7bn in the 1Q which is way below the average RM60bn p.a required to hit the 5-year spending commitment of RM300bn. The reasons for the slower contract flows could be traced down to delay and possibly finalization of annual budget allocation in the 1Q12. However, we remain positive that contract flows to pick-up in the 2H with the focus on marginal field, floating solution, maintenance and fabrication spaces. Already both the number and value of contracts clinched in May have improved to 6 valued at RM2.3bn, the strongest month YTD. The effects of this slower contract awards are noticeable on O&G players share prices which underperformed the broader market, particularly the big players which are the prime proxies for this domestic upcycle. Hydrocarbon prices. A combination of receding geopolitical risk and rising economic headlines as well as worry on the growing imbalances in supply-demand have caused spot Brent to decelerate at a very fast pace, downed by 22% from this year high to USD97/barrel (last seen in Oct-11) with the Asian benchmark LNG price contracted by 19%. However, as of now, forecasts and comments by energy agencies continue to lead us to believe sudden price collapse in still far from reality also we are still witnessing robust activities within the O&G value chain and have yet to 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) while Trading Buy on Wah Seong (TP: RM2.28), and Sell on MMHE (TP: RM4.37).

Chiong Tong Chai chiongtc@bimbsec.com.my 03-26918887 ext 175

Companies

Price (RM)

Market Cap (RMm)

Core Net Profit (RMm) FY11 FY12 FY13 FY11

PER (x) FY12 FY13

FY12 Div Yield (%)

ROE (%)

Target Price (RM)

Rating

Bumi Armada Dayang Dialog MMHE Uzma Wah Seong

4.00 2.03 2.37 5.13 2.05 1.84

11,714 1,117 5,703 8,208 180 1,426

359.7 83.9 152.3 205.6 12.1 110.4

564.8 92.3 176.5 349.7 23.8 115.0

718.5 109.2 213.0 389.6 31.7 130.9

32.6 13.3 37.4 39.9 15.0 12.9

20.7 12.1 32.3 23.5 7.6 12.4

16.3 10.2 26.8 21.1 5.7 10.9

1.0% 2.5% 1.4% 0.4% 2.0% 3.6%

24.3% 15.7% 15.2% 12.8% 24.2% 10.7%

4.44 2.43 2.78 4.37 2.70 2.28

Buy Buy Buy Sell Buy T. Buy

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13 June 2012

Sector Outlook: Oil & Gas (Overweight)

Latest Quarter Results

Company Bumi Armada Dayang Dialog MMHE Uzma Wah Seong YoY (%) QoQ (%) Against Our Estimates Below Below Below Below Inline Below Earnings Estimates Remarks Contract award delay Weather Lower margin No new significant contract YTD Contracts execution progressing well No new significant contract YTD + margin contraction

Corporate Activities May 12

Date 07/05/2012 08/05/2012 08/05/2012 14/05/2012 15/05/2012 Company Bumi Armada SapuraKencana Perisai Bumi Armada SapuraKencana Nature Contract Win Contract Win Asset Acquisition Asset Acquisition Contract Win Remarks Secured 5 year charter contract worth USD65m from a Mexican company Secured EPCC contract worth RM460m for Serendah field from Murphy Sarawak Entered into purchase agreement for a JackUp Drilling Rig for USD208m Taken delivery for two large AHTS from Sanko Steamship Secured an EPC contract worth RM48.9m from Petrofac for the refurbishment, life extension and conversion of a MOPU Secured contract worth RM157m from Origin Energy Resources Ltd for the Origin Otway Phase 3 Development Secured an extension from Petronas for its existing integrated transportation and installation contract for another year worth RM1.3bn Entered into JV with Globe Marine Services to venture into Middle East O&G sector Signed MOU with Hydra Energy which is involved in development of small oil fields Secured a 18 month + 12 month charter contract for its work barge worth RM125.6m from ExxonMobile Entered into an MOU with Sew Infrastructure
Limited for collaboration for O&G projects

22/05/2012

SapuraKencana

Contract Win

24/05/2012

SapuraKencana

Contract Extension JV MOU

25/05/2012 25/05/2012

Alam Maritim Daya Materials

28/05/2012

Alam Martim

Contract Win

31/05/2012

Ramunia

MOU

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13 June 2012 Contract Secured YTD May 12 Company SapuraKencana Bumi Armada Uzma Alam Maritim Dayang Others Total Contract Value (RMm) 3,318.9 1,065 350 240.6 210 23.6 5,208.1

Sector Outlook: Oil & Gas (Overweight) Contract Secured YTD By Markets

On-going bidding highlights

Tender by Petronas Descriptions A joint bid from Ilk Construction and MMHE is understood to have emerged as the frontrunner during the commercial round for the engineering, procurement and construction of the 6k tonne Central Diyabekir wellhead platform. Petronas Carigali was reportedly commenced negotiation with MISC for a lease contract for its Angsi fields vessel based chemical enhanced oil recovery project. Initially the contract was supposed to run for a fixed 5 years period. Total cost for the project is estimated at USD1bn and major contract components can be break down into vessel, operation and maintenance and supply of chemicals. ExxonMobil has started conceptual studies on its Guntong enhanced oil recovery project in the Malay basin off Peninsular Malaysia. Study works commenced last month with the aim of wrapping up work by the end of this year. CarigaliHess Operating Company has invited bids for the transportation and installation of two wellhead platforms required for its Malaysia-Thailand Joint Development Area Block A-18 gas project. Potential players The news is consistent with MMHEs focus to bid for more contracts in the region. We see the joint bid as a credible one and see good chance for the partners to secure the job. Subsequent from this, the status for a formal tender for the project is now become unclear. Previously, Bumi Armada, M3nergy, Kencana, MMC Oil & Gas Engineering, Water

Petronas

Standard and Uzma reportedly interested participate in the project.

were to

ExxonMobil

Main beneficiaries would be fabricators i.e MMHE and SapuraKencana. EPCC contract is like to be awarded in FY13.

CarigaliHess

SapuraKencana

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13 June 2012

Sector Outlook: Oil & Gas (Overweight)

O&G Stocks Share Price Performance

130%

125%
120% 115% Bumi Armada

110%
105% 100%

Dayang Dialog

MMHE
Uzma Wah Seong

95%
90% 85% 80% 12/30/2011

FBM KLCI

1/29/2012

2/28/2012

3/29/2012

4/28/2012

5/28/2012

Source: Bloomberg, BIMBSec

Crude Price Spot Brent

45 130 110 90 70 20 50 15 40 35 30

25

30 11/14/08

10 11/14/09
Price (LHS)

11/14/10
Vol - 180 D (RHS)

11/14/11

Source: Bloomberg, BIMBSec

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13 June 2012

Sector Outlook: Oil & Gas (Overweight)

DEFINITION OF RATINGS BIMB 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 RECOMMENDATION OVERWEIGHT The Industry as defined by the analysts coverage universe, is expected to outperform the relevant primary market index over the next 12 months NEUTRAL The Industry as defined by the analysts coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months UNDERWEIGHT The Industry as defined by the analysts coverage universe, is expected to underperform the relevant primary market index over the next 12 months Applicability of ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Disclaimer The investments discussed or recommended in this report not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB securities Sdn Bhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should 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 and estimates included in this report constitute our judgements as of this and are subject to change without notice. BIMB Securities Sdn Bhd 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 http://www.bimbsec.com.my

Kenny Yee Head of Research

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