• Genting Bhd announced that it has received approval from the Ministry of Energy and Mineral Resources of Indonesia for the first phase plan of development for the Asap, Merah and Kido structures. These structures are within the concession area for the Kasuri Block in West Papua, Indonesia.

• This is pursuant to a production sharing contract signed between Genting Oil and Gas Limited and BP MIGAS, which is the oil and gas regulator in Indonesia. The concession period ends in year 2038.

• Genting Oil and Gas Limited are currently in a discussion and study to supply gas from the Kasuri Block to a Chinese state-owned petrochemical company. Genting Oil and Gas Limited plans to supply 170mil cubic feet per day of natural gas for 20 years to the petrochemical company.

• We view this development positively as Genting Group is a step closer towards generating earnings from the Kasuri Block.

• The group has extensively drilled and carried out seismic activities in Kasuri Block for many years. From FY14 to FY17, Genting Bhd spent RM2,293.8mil on exploration activities.

• The downside is that we do not know how long it will take for Genting Group to complete the first phase of development for the Asap, Merah and Kido structures and the negotiations with the Chinese-owned petrochemical company.

• In the long term, assuming that Genting Oil and Gas Limited supplies 170mil cubic feet per day, a natural gas price of US$2.711/mmbtu and an EBITDA margin of 50%, we estimate that Kasuri Block could generate earnings of RM331.3mil. This would improve Genting Bhd’s FY19F net profit by more than 10%.

• The oil and gas unit accounted for 2.7% of Genting Bhd’s EBITDA in FY17. EBITDA of the division was RM207.2mil in FY17. The unit’s earnings are mainly driven by its 57% shareholding in Chengdaoxi Block, Bohai Bay. Chengdaoxi Block produced 2.8mil barrels of oil in FY17.

• Maintain HOLD on Genting Bhd with a fair value of RM9.40/share.

Source: AmInvest Research - 7 May 2018