Yesterday, KNM announced that it and Zecon Bhd (Zecon) have entered into 2 heads of agreements with Gulf Asian Petroleum SB (GAP), which are: i) undertaking an EPC contract for a 150k/200k bpd petroleum refinery and 400k/525k mtpa polypropylene unit for GAP with a total project value of USD5.0bn (RM15.0bn), and ii) undertaking an EPC contract for a petroleum product storage terminal facility comprising 4 terminals with total storage capacity of 2.3m cubic meters, complete with supporting infrastructure and auxiliaries, including a jetty with a contract value of RM2.0bn. Both projects will be located in Teluk Ramunia.
No change to FY12 earnings forecast. Although these 2 projects could potentially contribute positively to its FY12-15 earnings, we are keeping our FY12 forecasts unchanged for now pending more financial guidance from management. Also, due to past events, we harbor some doubts on whether the project will take off. In March 2008, Qatar-based Gulf Petroleum Ltd’s plans to construct a USD5bn O&G complex in Malaysia petered out even though it had earlier signed an agreement with the Malaysian Government. Other than that, we believe that securing the project financing itself has some uncertainty given the huge sum needed.
Maintain Trading Buy. Our fair value for KNM remains unchanged at RM2.80, based on a PER of 13x FY12 EPS.
No change to FY12 earnings forecast. Although these 2 projects could potentially contribute positively to its FY12-15 earnings, we are keeping our FY12 forecasts unchanged for now pending more financial guidance from management. Also, due to past events, we harbor some doubts on whether the project will take off. In March 2008, Qatar-based Gulf Petroleum Ltd’s plans to construct a USD5bn O&G complex in Malaysia petered out even though it had earlier signed an agreement with the Malaysian Government. Other than that, we believe that securing the project financing itself has some uncertainty given the huge sum needed.
Maintain Trading Buy. Our fair value for KNM remains unchanged at RM2.80, based on a PER of 13x FY12 EPS.
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