Petronas has confirmed the discovery of a good-quality gas reservoir via the Cengkih-1 exploration well in Block SK320, in the Central Luconia Province, about 220km off the coast of Bintulu in Sarawak. This should present opportunities for KKB Engineering’s steel fabrication unit which covers O&G facilities, as there could be a need for wellhead platforms for drilling activities in this area.
The stock is trading at an undemanding 13.2x FY23F P/E, at 1SD below the 5-year mean. Background of Block SK320. The block is operated by Mubadala Petroleum, which has a 55% participating interest in the production-sharing contract. The remaining 45% is held by Petronas Carigali and Sarawak Shell. The block itself commenced its first gas production via the Pegaga gas field earlier in March. The Pegaga field recorded the discovery of 1trn cubic feet of additional gas in place, following the post-drill results which confirmed a larger and better-quality reservoir. Meanwhile, the Cengkih-1 exploration well is located nearby the Pegaga field.
What may be in store? RHB think that KKB, via its subsidiary OceanMight, will be a potential beneficiary of this latest oil discovery. This is because OceanMight was awarded a job by Sapura Fabrication in May 2018 for the provision of the procurement and construction of wellhead deck, piles, and conductors for the Pegaga Development Project under Mubadala
Petroleum (this project has been completed). Hence, OceanMight is no stranger to Block SK320 and also Mubadala Petroleum. Even if decommissioned wellhead platforms are to be deployed, OceanMight could still benefit – albeit with a lower contract value – via requalification works. All in, RHB reiterate that higher capex by Petronas may boost OceanMight’s
steel fabrication business for O&G platforms, with it being the only other Petronas-licensed fabricator in Sarawak besides Brooke Dockyard and Engineering Works Corp.
RHB makes no changes to its earnings estimates. The research house maintains TP of MYR1.85 pegged to a target FY23F P/E of 17x after ascribing a 0% ESG premium based on our in-house methodology.
