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Thursday, October 20, 2011

Lumut Yard Expansion in Store? (ext.OSK)

The Edge Financial Daily reported that Kencana is in talks to acquire more than 130 acres of yard space beside its fabrication yard in Lumut, Perak. The report added that Kencana is close to sealing the deal, which would increase its yard space to over 300 acres from the existing 172 acres. It is speculated that the seller is Lumut Maritime Terminal SB (LMT), in which the Perak state government has a 50% plus 1 share.

Kencana should expect more jobs to come. We believe its yard utilization rate is only between 50% and 60%. Hence, the latest move to expand its yard may reflect Kencana’s optimism of a healthy flow of fabrication projects in the next 2 to 3 years. We believe these jobs would continue to stem from marginal oilfield developments, where more fields will come up for development once Kencana’s as well as Dialog’s consortiums successfully get their awarded fields off the ground.

Maintain Buy. Our fair value for the stock remains unchanged at RM3.17 based on the existing PER of 23x FY12 EPS. Kencana

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