Barakah Offshore Petroleum Bhd (Barakah), en-route for a listing on 6 Nov-13 from the RTO exercise, is another upstream oil & gas company to watch. We are projecting a 3-year net profit CAGR of 30.1%, underpinned by its: (i) existing RM500m HUC backlog; (ii) continued positive market share in the commissioning segment which accounted for c.70% of its total FY12 revenue, and (iii) increased subcontract work in the T&I space. Further catalysts to the stock is if it: (i) successfully secures some contracts via its joint-venture partner in the Gulf region; and (ii) manages to secure a direct contract for the Pan Malaysia T&I contract that is expected to be dished out by 1Q2014. We are initiating coverage of Barakah with an OUTPERFORM rating and target price of RM1.03/share, based on fully-diluted CY15 PER of 12x. Our target PER is at a 15% discount to its peers’ (Alam and Perisai) 14x due to its smaller asset base (it currently owns only one pipelay support vessel). This implies a 58% upside from the IPO price of RM0.65/share. We highlight that our current TP is based on a conservative viewpoint. Assuming Barakah manages to secure a whole package of the Pan Malaysia’s T&I, it would be valued at a much higher valuation of RM2.63/share.

A RTO of Vastalux. Barakah was incorporated early this year to facilitate a RTO exercise of Vastalux Energy Bhd (VEB)’s listing. It received the Securities Commission’s approval on 3 May-13 for a listing on the Main Board via RTO/Transfer of listing. Upon completion of the Proposed Share Exchange, VEB will be a wholly-owned subsidiary of Barakah.

Strong contract backlog. Current orderbook stands at RM775m while tender book is significant at RM6.1b. The company is confident of securing RM500m-RM600m new contracts per annum for the next three years on: (i) continued growth in market share in the commissioning segment, and (ii) increased subcontract work in the T&I space.

Brand new derrick lay barge (Kota Laksamana 101). Completed in September 2012, Kota Laksamana 101 is currently chartered as an accommodation and lifting barge with contract duration until November 2013. Being a 100% locally owned Malaysian flagged entity, this increases its chances of securing contracts in Malaysia.

Excellent project track record delivery and experienced leadership team. The group’s dedicated management team has an excellent historical track record in formulating and implementing strategic plans and posses delivery track record with zero long-term injuries since 2000. The group is led by an experienced Board with vast experiences in various senior leadership and operational positions in the oil and gas sector, especially in offshore pipeline installation.

Expecting a strong bottom line in FY13-FY15. We expect the group to achieve RM38.0m (+14.5% YoY), RM49.0m (+28.9% YoY) and RM73.1m (+49.2% YoY) of net profits in FY13, FY14 and FY15, respectively. Its FY13, FY14 and FY15 turnovers, meanwhile, are expected at RM287.0m (+42.1% YoY), RM435.0m (+51.5% YoY) and RM522.8m (+20.2% YoY), respectively. Drivers for the significant growth in revenue are: (i) better opportunity in T&I segment and (ii) continued growth of market share in the commissioning segment. Risks to the stock are: (i) downturn in the oil & gas sector; and (ii) over-dependence on major clients. 

Source: Kenanga