2014, a robust year for corporate exercises in the O&G sector

by **Cals** Tue 07 Jan 2014, 18:27

Business & Markets 2014

Written by Zatil Husna of theedgemalaysia.com

Tuesday, 07 January 2014 17:03

KUALA LUMPUR (Jan 7): UOB KayHian Research anticipates a robust year for corporate exercises to happen within the oil and gas (O&G) sector as it expects there tol be listing of more O&G special purpose acquisition companies.

In a note today, the research house said this year will see more O&G special purpose acquisition companies (SPAC) such as Reach Energy; SapuraKencana Petroleum to list its drilling or energy division and other merger and acquisition (M&A) deals to acquire new expertise.

“We anticipate 2014 to be a robust year for corporate exercises (such as M&As or IPOs) in the O&G industry. We look forward to Icon Offshore’s listing, which is looking to raise RM450 million via its IPO,” said the research house.

Furthermore, the government announced in Budget 2014 that the RAPID project will be undertaken by Petronas.

“We expect the final investment decision to be made in the first half of 2014 (1HFY14) and key beneficiaries include Dialog Group Bhd and Deleum Bhd,” the research house said.

In its note, UOB KayHian highlights on Perisai Petroleum Teknologi Bhd’s maiden drilling contract, which the group recently acquire its third jack-up rig for US$211.5 million.

“Theoretically, the company would have secured a deal for its first jack-up rig due in 2Q14 before acquiring its next, but given that it has gone ahead to buy its third jack-up rig, there is little doubt that a deal is already on the table for its first jack-up rig (our channel checks indicate that rates could be around US$150,000/day).

“Depending on the tenure of the contract, a contract win would reaffirm our investment thesis on the ‘asset localisation’ theme, which should still hold in 2014,” it said.

In addition, the research house’s top small-cap pick is still Barakah Offshore Petroleum Bhd.

“For investors who are looking out for companies that are venturing overseas, Barakah should not be missed out in our view.

“While many seem to think that the rally is over for Barakah, we maintain our positive view on the company as our channel checks suggest that the company is one step closer to securing its maiden overseas project in the Middle East or Indonesia.

“While not many details were shared, we understand that both contracts combined could be worth over US$1.0b-1.2 billion and the project could be awarded sometime this year,” the research house said.

UOB KayHian’s target price for Barakah is maintained at RM1.70 currently, but a victory could boost its target price to RM2.30-2.50 assuming 10% net profit margins.