News

Yesterday, BARAKAH received a Letter of Award (LOA) from Petronas Carigali Sdn Bhd (PCSB) for the supply, refurbishment and maintenance of cleaning pig and associated services in Sabah and Sarawak.

This is part of PCSB’s yearly operational pigging program, involving internal bore maintenance, internal corrosions mitigation and pipeline’s design life maximization.

The contract is potentially worth RM20m-30m for duration of 2 years from 26th June 2015, with an option to extend further for another year.

Comments

The contract is deemed within expectation as we have earlier imputed contract replenishment of RM100m from pipeline and commissioning services segment for FY15.

It is the 3rd win of pigging related services year-to-date amid the challenging environment, bringing the total value of contract secured year-to-date to around RM130m. Including the newly secured contract, we expect the total new contracts secured year-to-date to contribute c.RM50m to the topline in FY15.

Operating margin of the contract secured is close to 15% in-line with group’s 2014 average operating margin.

Having said that, there may be further margin compression as operators are mostly undergoing cost optimization exercise in the volatile oil price environment.

Outlook

We believe its pipeline services business will remain resilient under current market conditions as it is more skewed towards maintenance services, which are less sensitive to oil market cycle.

However, there are concerns on the installation and construction division which has yet to secure any transportation and installation job this year.

Based on our back of the envelope calculation, the orderbook should be reduced to RM1.7b from RM1.8b due to slower contract replenishment as at end 2Q15.

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 pending 2Q15 results announcement end of this month.

Rating

Maintain MARKET PERFORM

Valuation

Our Target Price is maintained at RM0.94, pegged to unchanged CY16E PER of 9.0x which is consistent with small caps’ valuations (7-10x) in an industry down-cycle.

Risks to Our Call

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

Source: Kenanga Research - 13 Aug 2015