􀂃 Sarawak-based Dayang offers direct exposure to lucrative brownfield oil & gas activities and marine charters services in East Malaysia.

􀂃 Dayang should deliver a 27% EPS CAGR in FY08-09, riding on its RM627m orderbook and marine contracts, with upside potential if it develops its marine assets and/or takes the M&A route.

􀂃 Dayang’s 11x FY09 EPS, based on its RM1.45 IPO price, is higher than closest peer Petra Energy’s 7x and small-cap’s 8x average, but its share price may open higher, riding on its major shareholders’ clout.

Direct proxy to East Malaysia’s oil & gas play. Sarawak-based Dayang Enterprise Holdings, 74% owned by Naim Cendera (NCH MK; Not Rated) (34%) and its promoters - Harry Bujang (16%), Tengku Yusof (15%) and Ling Suk Kiong (10%), offers direct exposure to the rewarding brownfield oil & gas segment and marine chartering services in East Malaysia. Offshore topside maintenance and marine vessel chartering are Dayang’s core businesses (accounting for 98% of gross profit in FY07), while minor fabrication, and hookup and commissioning works play complementary roles.

Orders are Sabah-Sarawak centric. Not surprisingly, its RM627m brownfield oil & gas contracts, stretching into 2012 (see table overleaf), are for Sarawak and Sabah fields. Petronas Carigali (PCSB) is its largest customer to-date, accounting for 48% of total orders. Dayang’s tenders for new contracts worth RM600m are a testament to increasing brownfield activities in Malaysia, as the
country seeks to optimize production from the existing oil platforms.

27% EPS CAGR in FY08-09. Dayang is financially healthy, cash-rich and has consistently generated decent EBIT margins and teen ROEs. Dayang should deliver 27% EPS growth p.a. in FY08-09, riding on its existing RM627m orderbook and marine contracts. There is further room for growth as Dayang will take delivery of a new workboat/barge by end-08, and as new contracts are
awarded (not incorporated into forecasts). We are also not ruling out Dayang eyeing the M&A route for inorganic growth and/or growing its marine fleet as Dayang, with its light financials, has the capacity to gear up. On the flip side, we are concerned that superior 30% pretax margin (2x of Petra Energy’s) may be under pressure due to higher operating expenses (i.e. wages, steel, etc).

Not Rated; greater values lie elsewhere. Dayang’s 11x FY09 EPS, based on its RM1.45 IPO price, is above closest peer Petra Energy’s 7x and small-caps’ 8x average, but its share price may find support from its shareholders’ clout.

Wah Seong (RM2.23)- gets RM390m job

Wah Seong Corp Bhd has clinched a RM390m contract for the manufacture, supply, coating and storage of pipes for the Sabah-Sarawak Gas Pipeline (SSGP) project, boosting its order book to a whopping RM1.7b. Wah Seong told Bursa Malaysia yesterday that its unit Petro-Pipe (Sabah) Sdn Bhd signed the contract with Petronas Carigali Sdn Bhd on Tuesday.

The pipes were scheduled for delivery within a year from September, it said, adding that the contract was expected to contribute positively to group earnings for the financial years ending Dec 31, 2008 and 2009. Managing director and group chief executive officer Chan Cheu Leong told StarBiz that the group was in the midst of setting up an integrated pipe coating and manufacturing facility in Kimanis, Sabah. CEO Chan sees good prospects for the group as investments in O&G infrastructure such as pipelines and process equipment would continue to grow, driven by increased demand and the under-investment in O&G infrastructure over the past decade. “The Asia-Pacific and Central Asia are the immediate areas of focus of the group,” he said. Wah Seong rose eight sen to RM2.23 yesterday on volume of 1.7 m shares. (StarBiz)

Fuel Subsidies and Prices

The Two RON-nies…
The Government is reportedly considering a proposal to introduce RON95/RON99 petrol, an "upgrade" from RON92/RON97 currently on sale at pump stations, as the means to address its growing burden of maintaining heavily subsidised fuel prices.

The principle here is "two-tier product and pricing" and "cross-subsidisation". This is workable IF low income and high income fuel consumers are effectively segregated via the consumption of different petrol grades, hence different prices, with the latter group "subsidizing" the former group.

However, we noted that virtually all cars on the roads these days can run on RON95 petrol, which means a mechanism that involves subsidized RON95 price and partially-subsidised or non-subsidised RON99 price is virtually ineffective in containing the Government’s fuel subsidy costs. Reading between the lines, we suspect the real motive is to raise fuel prices, with RON95 cheaper than RON99, creating the "price subsidy illusion" on the part of the public, with the ultimate objective being cutting or containing the amount of fuel subsides incurred by the Government.- Aseambankers

Hiap Teck gears for new markets

By Sharen Kaur
The main board firm is talking to a few parties in Europe to sell oil and gas pipes as well as structural pipes to the UK, Germany and Belgium.

HIAP Teck Venture Bhd, which makes steel pipes, plans to utilise its production capacity to the fullest by moving towards new markets, such as the US and Europe, and targeting the oil and gas industry.It wants to increase its profit base and is planning its first shipment to the US in May, executive director Law Sook Teng said.The main board firm with a market capitalisation of RM600 million is also talking to a few parties in Europe to sell oil and gas and structural pipes to the UK, Germany and Belgium in the second half-year."We have excess capacity and it is about marketing and selling that. We are moving into the US, which is a relatively new market for us. Our next target is Europe," Law told Business Times in an interview.

Hiap Teck is the largest electric resistant welding (ERW) pipe-maker and exporter in the Asean region.Its annual capacity from nine production lines in Meru, Klang, is 580,000 tonnes. Out of that, 300,000 tonnes will go towards making big-diameter (six to 18 inches) oil and gas, water, and infrastructure pipes.Currently, only 35 per cent capacity is being utilised to make gas and infrastructure pipes. The company wants to increase this to 60 per cent by the next financial year by selling more oil and gas pipes.The remaining 280,000 tonnes, of which about 80 per cent is being utilised, are for making optimum and mid-range pipes (two to six inches).

Hiap Teck is targeting double-digit growth in revenue and net profit for its fiscal years ending July 31 2008 and 2009, driven by capacity increase and utilisation, Law said.It made net profit of RM71.4 million on revenue of RM1.28 billion in the fiscal year ended July 31 2007.Law expects new markets and higher-grade pipes to contribute towards better earnings."We had shipments for commodity pipes to the US two years ago, but stopped because of competition from China. Now, we are shipping high-grade oil and gas pipes," she said.The company expects the US and Europe to be its next biggest markets, after Australia and Singapore which are currently contributing up to 35 per cent each to revenue.Law also said that Hiap Teck's new market, Indonesia, is poised be its fifth biggest, contributing around 15 per cent of revenue in one to two years.

Hiap Teck is bullish that the oil and gas, water, manufacturing, and infrastructure industries will remain significant contributors to its bottom line.

Kencana- Quek now 2nd largest shareholder

It was reported that Quek Leng Chan has emerged as a substantial shareholder- after bought additional 5.1% from the market. Before this, he hold 4.8%.

Trading range between 1.40-1.60.

Kencana to up marine-based contribution to 20pc

KENCANA Petroleum Bhd, an integrated solutions and services provider for the petroleum industry, aims to increase contribution from its marine-based business to 20 per cent by 2011.

Its executive chairman Datuk Mokhzani Mahathir said he is confident of increased demand for the group's products."We have proved that we can produce technological structures that are cost-effective. "People are more aware of such facilities here," he told reporters after the Maari sail-away ceremony in Lumut yesterday.

Maari is the world's largest and tallest wellhead platform structure ever built by Kencana HL, a subsidiary of Kencana Petroleum. The technology is from Norway while the project owner is from Australia.The Maari wellhead platform was fabricated in Kencana HL's fabrication yard in Lumut and it will operate out of New Zealand by September this year.

Mokhzani said there are only two similar structures in the world, and Maari that stands at 150m is the taller of the two. Weighing 10,000 tonnes, the Maari is also the tallest offshore structure to be built vertically, in Malaysia."It is self-elevated, relocatable and cost-effective," he added.While the overall cost of the Maari development - including construction of a floating, production, storage and offload vessel - amounts to US$450 million (RM1.4 billion), Kencana Petroleum was given 10 per cent of the jobs, worth about US$45 million (RM143 million)."We are also eager to start our second project on such wellhead structure soon," he said, adding that the Maari platform is expected to reach its final destination within two weeks.

He said Kencana Petroleum has also secured drilling and fabrication of drilling rig licences from Petronas, boosting the group's marine-based business.Mokhzani said Kencana Petroleum had launched the first steel-cutting to mark the construction of its first drilling rig, the Kencana Mermaid-1, last month."We expect the rig to start servicing by the end of next year," he said.

Kencana (RM1.30) - still good bet for upstream O&G

Good:

1- Oil hit USD110/brl

2- Higher dd for oil rigs

3- Australian contracts i.e to Cameron Ltd- BHP Pyrenees Project

Not so good:

1- Project delays

2- Deteriorating orderbook

3- Outsourcing of installation - execution risk

Trading range from RM1.30-1.41.