The Edge Daily - 24 June 2008
EPIC major beneficiary of O&G boom
EASTERN Pacific Industrial Corporation Bhd (EPIC) is a major beneficiary of the booming oil and gas (O&G) sector and is the cheapest play in the sector with undemanding valuations, said SBB Securities Sdn Bhd.
It is trading at about 7.9 times its earnings multiple for the FY2009 earnings against its peers that are trading at 12.8 times, the research house said yesterday.
It said EPIC traded lower than its peers at 1.08 times price/net asset value P/NAV of RM1.80 (against the industry's 5.1 times) and offered consistent earnings growth prospects of average 15% per annum, together with decent dividends with yield in the region of 4.2%.
SBB Securities said EPIC has a monopoly in the provision of support services to O&G companies operating offshore Terengganu via its 99.07%-owned Pangkalan Bekalan Kemaman Sdn Bhd (PBK) that owns and operates Kemaman Supply Base (KSB).
"The prospects of KSB are underpinned by the ongoing exploration and production activities at the oil and gas fields offshore Terengganu. Facilities at PBK include berthing facilities, rental facilities, cargo-handling services, bunkering facilities and silos," it said.
The research house said EPIC was also well positioned to provide logistics services to international traders, given its experience as project manager for Kemaman Port since 1998.
Having built its foundation as a key logistics service provider such as petroleum supply base operations and port management to the O&G industry in Malaysia, EPIC is expanding into related activities to broaden its earnings base in its quest to become an integrated O&G service provider.
"Besides enhancing the supply base operations, EPIC has moved into upstream activities involving steel fabrication business," it said.
SBB Research said EPIC's acquisition of a 70% stake in Mushtari Engineering & Trading Sdn Bhd would give it additional strength as a minor fabricator catering to both the offshore and onshore O&G industry.
It said Mushtari was well established as a minor fabricator plant shutdown and maintenance expert, adding that EPIC has secured a land and entered a joint venture to set up Terengganu Fabricators S/B (T-Fab).
SBB Securities said it was strongly positive on the booming O&G sector, and Petronas preference for domestic companies created a large, defensive market for Malaysian O&G service companies.
The research house said it expected EPIC to enjoy core net earnings growth of compound average growth rate of 15% in 2008-09, driven mainly by its supply base operations, port services and other services, as well as robust fabrication activities.
"We project EPIC to record earnings per share (EPS) of 20.7 sen in 2008 and a higher 41 sen in 2009, which translates into 9.2 times 2008 price earnings ratio (PER) and 7.9 times PER09, respectively."
"Our indicative fair value for EPIC is pegged at RM2.50 per share, based on 10.3 times FY09 EPS. We are valuing EPIC at a 33% discount to the industry average due to its illiquidity, less spectacular growth and smaller market cap against its peers," it said.