Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Buy call on KENCANA PETROLEUM BHD [] and remains its top pick for the O&G sector.

The research house said on Monday, Oct 4 that its target price for the company is RM2.06 based on a calendarised PER of 16x FY11 EPS.

The Edge weekly reported there is a possibility of Kencana taking over Labuan Shipyard and Engineering Sdn Bhd, which is a unit of Umno-linked Realmild Sdn Bhd.

'If this news flow is true, we believe it would be positive to Kencana given that the industry is moving towards being a one-stop solution provider, which include both technical knowledge as well as geographical presence to be cost effective for the customers. Having Labuan Shipyard will boost Kencana's presence in the Sabah and Sarawak's markets,' it said..

The takeover is for Kencana to beef up its facilities to qualify for theRM3.8bn contract to be awarded by Petronas soon. This contract is believed to be a four-year contract for the topside maintenance as well as hook-up and commissioning for all Petronas's oil rigs in Peninsular Malaysia as well as Sabah and Sarawak.

According to Labuan Shipyard's website, the yard had been in existence since 1972. To-date, it has an extensive and proven track record in O&G engineering and fabrication, shipbuilding, ship repair and CONSTRUCTION [] of power barge.

Besides that, Labuan Shipyard is also actively involved in the refitting, modernization and scheduled and maintenance of naval craft. It also has a covered workshop ratio of 1.2:2.0.