News  Yesterday, Barakah Offshore Petroleum Bhd (BARAKAH) announced that it has received a letter of award from

Petronas Dagangan Bhd (PETDAG, NOT RATED) for the engineering, procurement, construction and commissioning of biodiesel storage and blending facilities and its associated accessories at four different PETDAG Fuel Terminals in East Malaysia.

 The contract is expected to commence immediately and to be completed by September 2014.

 The value of the contract is RM29m.

Comments  This is BARAKAH’s third win for the year, taking its cumulative wins to RM199m for FY14.

 We are positive on this win as it shows BARAKAH’s ability to continue winning contracts, which is on track to match our RM220m contract wins assumption for FY14.

 We understand that the EBITDA margin for this contract could be in the range of 18%-20%; which is slightly lower than the group blended EBITDA margin of 20%-23%; as BARAKAH will outsource part of the contract. As such, the contract will yield RM5.2-5.8m.

 The new win lifts BARAKAH’s order book to c.RM2.49b and provides earnings visibility for the next three years.

Outlook  Management guided that 1H14 results could be seasonally lower due to the monsoon factor. However, it will pick up in 2H14 on the back of higher installation and construction activities and execution of the new contract.

 Arab Saudi T&I contract’s new submission date for the retender will be in May-14, which is in contrast to our earlier expectations that it will be dished out by Feb-14. The award of this contract is likely to be in Sep-14 with project commencement only by 2015.

 Excluding the tender book for the Arab Saudi project, we understand that BARAKAH is actively bidding for c.RM400m-RM600m worth of projects.

 Additional growth for the T&I segment will hinge on BARAKAH’s future asset expansion. We understand that the company may expand its asset base in line with the expansion in contracts awarded.

Forecast  We are maintaining our forecasts numbers as we have already imputed some wins in our order book assumption.

Rating Maintain MARKET PERFORM

Valuation  Our target price of RM1.74 is based on CY15 target PER of 13x.

 We believe our valuation for BARAKAH is still reasonable as we are valuing it at a 13.3% discount to the 15.0x PER ascribed to industry peers such as ALAM (OP; TP: RM2.07) given its smaller asset base (it currently owns only one pipe-lay support vessel).

Risks to Our Call (i) A downturn in the oil & gas sector could result in delays in contract rollouts.

 (ii) Delay in the Pan-Malaysia’s T&I project execution, which will reduce the potential earnings being factored in our forecasts.

 (ii) Lower-than-expected margins.

Source: Kenanga