News      Yesterday, PUNCAK announced that its wholly-owned subsidiary, GOM Resources had secured a contract for the provision of integrated transportation and installation of offshore facilities for early production scheme (EPS) for the Integrated Gas Development (IGD) Project, North Malay Basin (NMB) Field worth RM187m from HESS Exploration and Production Malaysia B.V (“HESS”).

Comments      The scope of works for the RM187m project will consist of the transportation and installation of 16” x 53km Kamelia pipeline with a contract period of 17.5 months.

To recap, the North Malay Basin project is a collaboration between Petronas Carigali and HESS with a total value of RM16.5b to develop a new integrated gas development in Peninsular Malaysia over the next five years in two phases, which would involve the construction of a 300km pipeline.

We are very pleased with the RM190m contract award from HESS as it came in well within our expectation. To recap, PUNCAK’s Oil & Gas revenue has grown tremendously by 169% from RM289m to RM778m in FY12, which is in line with the group’s strategy to expand its Oil & Gas division with a revenue target of RM1.0b to RM1.5b in the near future.

Assuming a conservative 7% net margin, we expect the above project to contribute about RM13.1m or 3.2 sen/share to PUNCAK.

Outlook     Going forward, we believe the Oil & Gas industry outlook remains vibrant for PUNCAK as the sector rides on the Petronas’s capex spending plan of RM300b.

However, election risk remains as the main risk for PUNCAK due to the uncertainties of the outcome of the upcoming General Election.

Forecast     No changes to our earnings estimate as the contract award was well within our estimates.

Rating     Maintain OUTPERFORM

We are keeping our OUTPERFORM rating on PUNCAK despite the uncertainties arising from the upcoming General Election as we opine that PUNCAK remains the best candidate for our Dark Horse strategy as the recent offer from SSG could have valued it at RM2.43/share.

Valuation     We are maintaining our Target Price of RM2.85, which is based on our Sum-of-Parts valuation.

Risks     Prolonged water consolidated process.

Source: Kenanga