SOGT contract likely; upgrade to BUY. Alam’s plan to venture into pipe installation is coming to fruition. Its 50:50 JV with Swiber (SWIB SP, Outperform) is set to clinch a US$50-60m contract relating to Petronas’s Sabah oil & gas terminal (SOGT) and is teaming up with the Sabah state agency Yayasan Sabah on O&Grelated works. Imputing the contract in our FY11 forecasts and assuming the award of similar-sized contracts in FY12-13, we raise our EPS by 16.9% for FY11, 13.3% for FY12 and 11.1% for FY13. Given Alam’s improving prospects, we now value it at a 20% discount to our 14.5x target market P/E instead of 30%, which, together with our earnings upgrades, increases our target price from RM1.03 to RM1.40. We upgrade Alam from Sell to BUY, with the potential catalysts being 1) the announcement of the SOGT contract, and 2) more pipe installation ventures.
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