News

Last Friday, BARAKAH announced that it’s wholly-owned subsidiary PBJV Group Sdn Bdn (PBJV) has secured a contract from Kebabangan Petroleum Operating Company (KPOC) for the provision of topside maintenance services in Sabah.

The contract duration is for one-year effective from 2 April 2015 with an option to extend for another one year. The mobilization date for the work is expected to be on 1 May 2015.

However, no contract value was mentioned as the work done will be dependent on client’s actual work order during the contract period.

Comments

This is BARAKAH’s second win for the year and it is not a surprise to us as they have secured a T&I contract for the same field from the same client in 2013. We have already factored in RM150m job wins assumptions for FY15.

We reckon the net profit margin for the project would be in the range of 8.0-10.0%, in-line with its existing projects’ margin.

Overall, this is a positive to the company despite the insignificant contract value as it shows that the company is still able to secure contracts even during difficult times for the industry.

The job win showcased BARAKAH’s strong ability in their previous contract execution, which opened up opportunities for it to secure more contracts from existing client.

We expect smaller and shorter-term contracts to be dished out in the year compared to large umbrella contracts as in the past few years as oil companies opt to be more nimble in their operations to control costs.

Outlook

BARAKAH is likely to secure more short-term contracts due to volatile crude oil prices and uncertainties in the industry.

However, we believe that oil majors would not reduce pipeline services / replacement works significantly as it is crucial for them to maintain a safe oilfield working environment.

Orderbook stands at RM2.0b which will provide earnings visibility for the group until 2018. However, timing and burn rate of the orderbook remains uncertain for 2015 as work orders might be slower than expected and back loaded to later years.

Excluding the tender book for the Arab Saudi project, BARAKAH is currently bidding for RM400m–RM600m worth of projects.

Forecast

We maintain our forecasts for now as we deemed the contract win as within our orderbook replenishment assumptions.

Rating

Maintain MARKET PERFORM

Valuation

Our Target Price is maintained at RM1.04, pegged to unchanged CY16E PER of 10.0x.

We have ascribed a premium over other small caps (7-10x) in an industry down-cycle due to: (i) its status as a Pan-Malaysia contractor servicing 11 PSCs over the next three years, and (ii) robust orderbook in hand. .

Risks to Our Call

(i) Slower-than-expected execution in the Pan Malaysia T&I project (ii) Lower-than-expected margins.

Source: Kenanga Research - 6 Apr 2015