· Assuming coverage with OW: We reiterate our Overweight rating on KNM given its global presence and strong branding, not only in the oil & gas sector but also in petrochemicals as well as minerals.
· Moving up the value chain with Borsig: Borsig is a Germany-based company specializing in critical high-temperature and high-pressure components. Post the completion of the acquisition of Borsig, KNM Group has now leadership position in various high-end/specialized products; hence allowing it to report gross profit margins in the range of 25-30%, up from the historical level of ~20%, in our view.
· Cautiously positive outlook on oil prices: The J.P. Morgan Commodities team is expecting oil prices to reach US$55/barrel and an average US$49/barrel in 2009. At US$50-55/barrel, conventional oil projects are feasible. Note that, conventional oil projects are feasible at US$30-40/barrel, while most deepwater projects should be viable at US$50-60/barrel.
· Primed for a re-rating as risk aversion moderates: We believe that the stock will outperform, driven by moderating risk aversion. The share price has fallen 77% from its peak and the stock is now trading at 5x FY09E earnings, which we believe is already reflecting trough earnings. Our FY09 earnings estimate of M$390MM is based on a revenue assumption of M$3B vs. full capacity of M$4B. Foreign shareholding has also fallen from its peak of 40% to sub-30%.
· Our Dec-09 PT is M$1.00: Our PT is based on a FY09E P/E of 10x, in line with its 5-year average P/E. As risk aversion moderates, we expect valuations to revert back to mean. We also fine tune our estimates (cut our FY09E NP by 41% and FY10E by 56%) as we were restricted on this stock for the past six months.
No comments:
Post a Comment