Highlights

Barakah is an upstream offshore service provider mainly focused on production phase such as commissioning of pipelines, offshore transportation and installations (T&I), maintenance and hook-up commissioning (HUC).

Moving up the value chain… Barakah is one of the bidders for Package A under Pan Malaysia T&I. The contract value is estimated at RM2-3bn based on 3 years firm contract. Successfully winning the tender for Package A will transform Barakah from a sub-contractor into a turnkey contractor, which will be a significant re-rating catalyst. To be conservative, we do not factor any win into our financial forecast, we only expect Barakah to get some sub-contractor jobs from the Pan- Malaysia T&I given its good working relationship with TL Offshore and GOM Resources.

Emerging player in HUCC segment… Recently, Barakah has secured an RM500m contract for Pan Malaysia HUCC in West and East Malaysia.

Oversea expansion… The company will focus on targeted markets such as Vietnam, Indonesia, Brunei, Mynamar and Saudi Arabia. PBJV Gulf Co Ltd (85%-owned subsidiary) has participated in tender for pipeline installation works in Saudi Arabia. The contract value is estimated to range from RM500m to RM1.5bn with result of tender to be known by end of 2013. We gather from management that Barakah has entered into MOU with a Netherlands based company to charter an additional pipe-laying barge shall it win this contract. Successfully secure any overseas contract will provide upside risk to our earnings forecasts.

RM775m order backlog (2.8x FY09/13 revenue) with RM6bn tenderbook... The size of its tenderbook is around RM6bn, equally split between local and overseas. Net income is expected to grow by CAGR of 30%. If Barakah manage to secure the turnkey contract for Package A in Pan Malaysia T&I which is expected to contribute RM600m per annum, net profit in FY15 will at least double from our current forecast.

Catalysts

• Secured contract from Pan Malaysia T&I.
• Overseas contract win.
• Stronger than expected quarterly result.

Risks

Global recession hitting O&G price; Projects cost overrun; Intense competition

Rating

Not rated.

Valuation

The company is trading at 14.5x fully diluted FY13 P/E and 11.4x FY14 P/E as compared to its peers which averaged 15x FY14 P/E and 12x FY15 P/E respectively.

By applying a 14x multiple (which is our target multiple for small cap O&G companies) on FY14 EPS, our target price works out to RM0.80, implying a total upside potential of 23%.

Source: Hong Leong Investment Bank Research - 31 Oct 2013