Highlighted By Peng01: Kencana's Receivables On The Rise

Blogged the other day: Quick Review Of Kencana's Earnings

• peng01 said...
  Year 2009 receivable/deposit/prepayment = 259,874
  Year 2010 receivable/deposit/prepayment = 593,883
  ???

To be more precise here's Kencana's Q3 earnings: Quarterly rpt on consolidated results for the financial period ended 30/4/2010


Here's the latest Q4 earnings balance sheet.



The jump in the receivables is rather glaring, yes?

How?

Why the 'sudden' jump?

Quick Review Of Kencana's Earnings

Kencana reported its earnings tonight.

On 29th June 2010, I blogged Should I Be Optimistic On Kencna?

Should I Be Optimistic On Kencna?

Kencana reported its earnings last night. The numbers were impressive (by itself - hehe.. meaning to say let's discount the local market expectations/comments on it).

Here is a simple compiled table on how Kencana has fared since listing.

ttm = trailing twelve months earnings.

Now using the ttm earnings as a simple gauge, it's most likely that Kencana would register another good profitable year for its current fiscal 2010. That's how I would ass-u-me. ( And for numbers/math fans, that should be about an annual compounded growth rate of 21.48% since fy 2007!)

Now stocks don't get rated by the market based on current numbers. They are always rated based on FUTURE expected numbers. Yeah, in simple terms, expected or estimated earnings. That's what I have been told. Hope I am not wrong.

So what's the current market expectations on Kencana?

Take OSK.

Now as I can see OSK's fy 2010 estimates is about 129 million, which is pretty close to what Kencana is doing now. However, Kencana is rated based on the FY11 estimate numbers.

OSK estimates Kencana fy11 profits to be at 191.8 million and uses a PE multiple of 16x for its fair value recommendation. This gives it a BUY target of 2.06!

CIMB numbers are actually higher than OSK! (LOL!)


CIMB estimates Kencana fy11 profits to be at 213.2 million and uses a PE multiple of 15x for its fair value recommendation. This gives a buy target of 2.15.

LOL! Yeah, OSK numbers are not the highest.

Now on the other side, RHB gave it an underperform rating with a price only 1.27!

RHB estimates Kencana fy11 profits to be at 160.9 million and uses a PE multiple of 13x for its fair value recommendation. This gives a buy target of 1.27.

Hmmm....

Obviously, the key or the bone of contention is the fy11 numbers. OSK gave it 191.8 million, CIMB gave it 213.2 million and RHB only gave it a 160.9 million.

So who should I believe in?

Do I believe that cows can fly? :P

Would a look at Kencana's recent quarterly earnings help. How about we compile Kencana's most recent 8 quarterly earnings numbers to help us gauge if the fy11 numbers are achievable or not.

Anyway, here's the compiled table...

Now would I NOT say that judging by Kencana's most recent or latest 4 quarterly earnings, Kencana is averaging around 30-31 million only.

Now if I take CIMB's estimates of around 213.2 million. Divided by 4, CIMB is telling me that Kencana should be averaging net earnings of around 53 million, per quarter. Based on its ttm numbers, Kencana is averaging only around 31 million! So for Kencana to jump from 31 million to around 53 million, that's a jump or growth of 22 mil ( 53 - 31 = 22 mil) per quarter.

And let's see... this is about 70% increase, yes?

I hope my cow-cool-lator is not as faulty as my brains. :P

70% growth woh.

Hmmm.... so would I be wrong to say that perhaps CIMB is overly optimistic?

Ok.. the least optimistic is RHB and RHB's estimate is around 160.9 million. Divided by 4, that should work out to an average estimate of 40 million per quarter. Again, based on its ttm numbers, Kencana is only averaging about 31 million per quarter. So based on an estimate of 40 million per quarter, this still works out to an increase of around 29%.

Yes, despite being most under optimistic, RHB still expects Kencana's earning to grow around 29%!

Hmmm..... Ken ah?

More Typical Poor Financial Reporting Again!

Published on the 26th May 2008: Kencana close to getting RM500m contract

• 26-05-2008: Kencana close to getting RM500m contract
  by Jose Barrock
  
  KUALA LUMPUR: Kencana Petroleum Bhd is said to be close to sealing a RM500 million contract for the fabrication of multiple well-head platforms from Shell Oil and Gas (Malaysia) LLC and Sarawak Shell Bhd, industry sources said.
  
  The platforms are to be used for the F-28 and Cili Padi petroleum and gas field developments, offshore Bintulu in Sarawak.
  
  Exploration of the Cili Padi field is being conducted by Shell Oil and Gas (Malaysia), a joint venture between Shell, state-controlled oil major Petroliam Nasional Bhd (Petronas) and Nippon Oil Corp. It is located about 153km off the shore of Bintulu.
  
  The F-28 field, operated by a joint venture between Sarawak Shell Bhd and Petronas’ unit Petronas Carigali Sdn Bhd, is located about 180km northwest of Bintulu.
  
  It is believed that a letter of intent (LOI) was given to Kencana in relation to this project last month. CIMB Investment Bank had, in a research report late last month, stated that the LOI had been given for the project.
  
  Assuming the LOI for the well-head platforms contract is converted into a Letter of Award, Kencana’s fabrication order book could be nudged up to the RM1.6 billion mark.

The classic nonsense of it is believed and according to sources yet again!

Come on, who are these sources man????

And given the history of poor reporting from this very same reporter, it was NOT a surprise for me to read that Kencana denies winning Shell contract this morning.

• KENCANA Petroleum Bhd, a Malaysian oil and gas services provider, denied a report in a local newspaper it won a RM500 million(US$154 million) contract from Shell Oil & Gas Malaysia LLC and Sarawak Shell Bhd.“Neither the company nor any of its subsidiaries has received any letter of intent,” Kencana said in a statement to the stock exchange yesterday. - Bloomberg

Now I just wonder why no action is taken against this reporter for all his continued 'according to sources' articles?

And doesn't it really renders our financial news useless when companies, such as Kencana here, denies what's written by the said reporter?

Sigh!

Kencana

My dearest Jake,

I do not know if Kencana will benefit from the Northern Corridor project. As it is I am sceptical because in my opinion the Northern Corridor project is a project where a massive pipeline will be built. Anyway, do note that the following topic was covered by Sal in his blog: http://malaysiafinance.blogspot.com/2007/04/south-johor-being-relaced-by-north.html

• Refineries will be built in Yan and Bachok, touching Kedah's west coast and Kelantan's east coast. The 320km pipeline will also service downstream industries planned along the pipeline (e.g. shipyards, slipways, lubricant plants). Already 3 jvs have been signed. One for each of the refinery and one for the pipeline. The Yan refinery will be built by NIOC and SKS Ventures Sdn Bhd. SKS Ventures Sdn Bhd has just signed a US$16bn deal to develop 2 gas fields in southern Iran. The Bachok refinery will be built by Merapoh Resources Corp as the lead team. The pipeline will be built by Trans -Malaysia Petroleum. Foreign investors having signed up include Saudi Arabia, South Korea and Japan, following after Iran being the biggest jv partner. Kedah and Kelantan will have a 5% stake in each of the jv.

And then there is also the Eastern Corridor as mentioned by Sal: http://malaysiafinance.blogspot.com/2007/04/oil-gas-dailog-sapcrest.html

Let me paste some comments from OSK during Kencana IPO. I see no mention of Kencana being involved as a oil pipeline player.

• OPERATIONS

  24 Years of history. The company started out in 1982 as a contractor for fabrication yards providing skilled and unskilled manpower. It was founded as Hin Loon Engineering by its Deputy Executive Chairman Chong Hin Loon who remains in charge of yard operations in Lumut. It then began operations in 2000 at its Lumut Fabrication Yard where it fabricates structures related to offshore production platforms. It was awarded its first topside and jacket project from Murphy in 2002 for the West Patricia field. As part of the listing exercise, Hin Loon Engineering (renamed as Kencana HL) was grouped with Best Wide Matrix SB (renamed as Kencana Bestwide). Kencana Bestwide had been incorporated in 1995 and provides design, engineering and project management services amongst others. Kencana’s current major activities are indicated in Figure 1.

  A medium sized fabricator. Kencana owns and operates a 53 acre fabrication yard located in Lumut Port Industrial Park, Perak. It has also leased another 14 acres next to its yard and the total fabrication capacity is currently 24,000 tonnes per annum.
  

  Differentiation as an integrated engineering and fabrication facility. The yard itself is located in a sheltered river mouth in Lumut. It has one of the largest covered workshops at 27,000 sq m which enables it to work in all weather conditions 24 hours per day. Kencana also differentiates itself through the services provided by Kencana Bestwide which allows it to be multi-disciplinary in terms of in-house design, engineering and fabrication.

  Diversified range of Products and Services. In terms of its products and services, Kencana is able to carry out engineering, fabrication and commissioning of process skids, modules and platforms (topsides and jackets) for the oil & gas industry.
  Platforms are offshore metal structures that are used in the extraction, processing and storage of oil. A platform can be roughly subdivided into the topside, which is above the water line and the jacket, which supports the topside and is below the water line.

  
  

  Modules are individual components within a platform that carry out specific functions such as gas compression, carbon dioxide removal and water injection. Skids are smaller versions of modules that perform similar functions. In manufacturing these modules, Kencana’s process involves:

  
  
  • Engineering based on specification from clients
    
  • Arranging for procurement from equipment and steel vendors
    
  • Fabrication of hardware
    
  • Installation of equipment, metering and control systems.
    
  • Factory acceptance testing
    
  • Handover to client
    
  • Site testing
  
  

  For the fabrication of platforms, the process involves:

  
  
  • Engineering based on specification from clients
    
  • Arranging for procurement from steel vendors
    
  • Blasting and painting of steel
    
  • Cutting of steel
    
  • Welding of steel structures
    
  • Blasting and painting of weld joints
    
  • Final inspection
  
  

  In addition to the equipment mentioned above which are also manufactured by its competitors such as Ramunia, Kencana has recently completed the first conversion of a jack-up drilling rig into a Mobile Offshore Production Unit (MOPU) by a Malaysian yard. A MOPU is a movable production platform that is suitable for use in marginal fields as it can be relocated at a new field when the current oil runs out. This was done for Global Process Systems and Tanjung Offshore to be used at Petrofac’s Cendor field.

  Given the experience in doing his, Kencana is hopeful for more similar contracts in the future as they expect more MOPU will be needed for Malaysian waters.

And here is some comments from icap written on Jan 2007.

• First, i Capital explains Kencana’s in-house capabilities, which comprise engineering, fabrication, installation and commissioning. Engineering works refer to the application of design and engineering knowledge to the creation of various structures such as the topside and jacket. They include initial solution conceptualisation, process simulations, undertaking research and development, front-end engineering and design (FEED) and detailed engineering. Fabrication activities cover the complete production facilities and process equipment system (modules and process skid) that are intended for use in production facilities. This phase includes the procurement of raw materials and components, all engineering disciplines such as electrical and instrumentation installation, cutting, fit up and welding, quality assurance and testing of offshore platforms and process skid systems utilising in-house design and installation resources. Installation and commissioning are the steps that are taken to bring a production facility or structure to a fully operational state. In most cases, the platform is installed, hooked-up and commissioned at the client’s site by third parties. The group undertakes a final round of testing at the site, before commissioning and undertaking a final handover. Usually, for those structures that are fabricated in the yard, the commissioning part starts when the structures are loaded onto the vessels. In some cases, the group carries out the complete scope of work, including installation, hook-up and commissioning.
  
  The current services provided by the group can be categorised into:
  
  [1]. Engineering and fabrication of offshore production facilities
  Kencana is involved in the engineering and fabrication of offshore platforms, which typically comprise two parts, the topsides and the jackets. Various modules are installed on the topside. Topside modules and jackets are typically fitted with equipment and brought as close to full operational status as possible at the Lumut fabrication yard. This is to minimise the amount of on-site equipment installation required, as well as to facilitate testing and corrective action should any of these systems fail to function as specified. However, third party contractors carry out the installations of the jackets and topsides, as highy specialised, heavy, and expensive equipment are required.
  
  [2]. Engineering and fabrication of modules
  A module is a set of equipment fabricated on a small platform that is designed to fulfil one or more functions. A module may be engineered and fabricated independently of the rest of the facility. It is similar to a process skid system, with the exception that a module is much larger and therefore less mobile. This is because of the high output required in terms of compression pressure and output volume. The modules fabricated by the group consist of gas compressors, carbon dioxide removal, and water injection.
  
  [3]. Engineering and fabrication of process skid systems
  A process skid system refers to any type of equipment or system that is housed on a transportable mini-platform. A process skid system incorporates all of the piping, electrical, control and instrumentation systems, and other systems that are required for it to function. The process skid may be integrated into a larger facility, or used on a stand-alone basis. Process skid systems currently fabricated by Kencana include metering, de-sanding, air compressor, gas conditioning, chemical injection, air dryer and crude oil separator. The group, with its in-house technical capabilities, is capable of designing and fabricating deoilers, electrostatic precipitators, and glycol dehydrators.
  
  Lumut yard
  The group owns its major fabrication yard at Lumut Industrial Park, Perak, which is equipped with modern facilities, including heavy overhead cranes, plant & machinery, covered workshop and fabrication equipment. The yard is equipped with all the necessary facilities and heavy lifting equipment to support in-yard fabrication and load-out of structures onto barges. The yard is capable of providing jetty facilities for loading and off-loading of barge structures of up to 17,000 tonnes. This production facility has 24,000 of tonnes capacity and 15,000 tonnes of fabrication volumes. Kencana has the yard space and resources required to undertake simultaneously fabrication of topsides, modules, and their accompanying jackets. The group usually handles large and heavy structures, the lifting and transporting of which require the use of specialised equipment. As such, the group engages a service provider to undertake transportation to the client’s site. The utilisation rate of the yard is approximately 70% and thus, there is a lot of room for the group to expand in the future.

Again, no mention of pipes.

And here is some 'newer' news on Kencana posted on BTimes.

• Kencana jobs in devt area surpass RM1b mark
  February 8 2007
  THE value of Kencana Petroleum Bhd's total contracts in the Malaysia-Thailand Joint Development Area (JDA) has surpassed the RM1 billion mark, with the latest job that it won.
  It recently bagged a RM136.5 million contract from Carigali-PTTEPI Operating Co Sdn Bhd (CPOC) to build multiple structures and substructures for JDA Block 17 Field Development Project. Located 150km north-east Kota Baru and 260km east of Songkhla, the fields, when completed, are capable of producing 270 million standard cu ft of gas per day.The contract was awarded to Kencana Petroleum through its wholly-owned subsidiary, Kencana HL Sdn Bhd, last Monday.Comprising packages for central living quarter's deck and jacket, central flare platform and tripod, and three interconnecting bridges, the project will have a combined initial weight of 3,800 tonnes.The construction and fabrication of these structures and substructures will be carried out in Kencana HL's 27ha yard in the Lumut area. This project is scheduled for completion in July 2009.CPOC's contract is the third secured by the Kencana Petroleum group within the Malaysia-Thailand Joint Development Area.Currently, the group is already undertaking two separate contracts for greenfield and brownfield development projects. Both contracts are for Carigali Hess Operating Co Sdn Bhd to provide engineering, procurement, construction, installation and commissioning of structures and modules valued at US$254 million (RM886 million).These two projects are expected to be completed by the end of 2007.

So I am not sure where you are getting such news. From what news and info I can get, Kencana is not an oil pipeline player. So if it's not an oil piple player, I find it hard to believe that Kencana will benefit from it. (Ah, stranger things can happen. JVs could be formed, etc etc). Perhaps it might be better if you ask yourself, how reliable is your source or perhaps you should ask Sal in his blog.

rgds

*** edit 11.49 am ***

Just saw that the Edge weekly got 2 articles...

1. 16 Apr 2007: Corporate: Chinese partner for refinery job
2. 16 Apr 2007: Corporate: Eastern Corridor master plan to be unveiled soon
   

The Denials from Kencana

Here is an update to the blog posting I made on Is Tan Sri Quek Leng Chan buying Kencana?

The Denials from Kencana.

Posted on the edge

• Kencana: No talks with Quek 26 Dec 2006 6:47 PM
  Kencana Petroleum Bhd said yesterday neither its directors nor any of its major shareholders were in talks with Tan Sri Quek Leng Chan for the sale and purchase of its shares.
  MORE>>

Posted on the Bursa website.

22/12/06 Article Entitled : "Quek to emerge a major shareholder in Kencana?"

We refer to the above news article in the New Straits Times, Business Times, page 39, on Thursday, 21 December 2006, in particular to the following extract:

"… Tan Sri Quek Leng Chan….. emerge as a substantial shareholder of …. Kencana Petroleum Bhd….""Quek… buy between 12 and 15 per cent of the company's shares…"

The Board of Kencana Petroleum Berhad wishes to inform that as of todate, the Company has not received any notice of interest of substantial shareholder pursuant to Section 69 E (1) of the Companies Act, 1965 from Tan Sri Quek Leng Chan.

Article Entitled : "Quek to emerge a major shareholder in Kencana?"

• Further to our reply to Bursa Malaysia Securities Berhad on 22 December 2006 in relation to the above news article, the Board of Directors hereby confirm that neither the Directors nor the major shareholders of the Company are currently in negotiation with Tan Sri Quek Leng Chan with regards to any sale and purchase of the Company's shares.

How?

Now the story is denied.

So who are these sources supplying such news to our reporters?

Are they even real?

Did these sources ask the press to publish news so that they can profit from the news?

How?

How do one rate the chances for our investors in Bursa Malaysia when they are fed with nothing but fake (can i use such a phrase since the story has been flatly denied?) news?

What chances do the investors have in such an environment?

Put this way, which investor would want to invest in a market when the game odds are totally against them?

How?

Is Tan Sri Quek Leng Chan buying Kencana?

One of my blog readers,UB, pointed out the following remarks.

• Quek to emerge a major shareholder in Kencana? click here for article
  
  "...TYCOON Tan Sri Quek Leng Chan, owner of the Hong Leong Group, may emerge as a substantial shareholder of oil rig builder Kencana Petroleum Bhd, sources said." ...
  
  "Quek may buy between 12 and 15 per cent of the company's shares from existing shareholders, one of the sources said." ...

UB then went to say "For comparison purpose, I wonder whether other countries' newspapers also come up with reports based on citing unnamed sources?

In Singapore, Aussie, UK or US... do they come up with articles in this way as well? Is this a norm thing in financial news reporting?

Anybody with overseas experience care to enlighten us?

Actually this kind of reporting in our local dailies has been going on for as long as I started reading the financial news...I mean if the newspapers can tell us something without naming their sources, what is the difference between their information, and that given by the ah-soh buying vegetables at the market?

(I mean apart from... the ah-soh's rumours won't cause the stock price to move sharply the next day.. or trading session.. whereas that which is published in the newspapers will...)"

I fully agree with what UB is saying here.

The press should not be used as a mean to promote stocks!!

And if and when this article is denied then how?

Shouldn't the reporters be questioned who exactly these ssources are?

Are they, these sources, even real?

And what vested interest does these sources have on these stocks? Hmm...