AmResearch has lowered its target price on Kencana Petroleum Bhd (5122) to RM2, from RM2.11 previously, mainly due to lower earnings forecast on the oil and gas service provider.
"We have reduced Kencana's FY10F (forecast financial year 2010) earnings by 8 per cent given delays in contribution from Kencana Mermaid 1 (KM1). On management's guidance, we have also reduced KM1's margin by 3 percentage points, which leads to a reduction in FY2011F and FY2012F earnings by 5 per cent," said AmResearch in its report this week.
However, it retained its "buy" call on the stock, as the company is expecting to announce more contracts.
"We have incorporated new contracts of RM1 million to RM1.5 billion in FY10F-FY12F.
"Most awards this year are likely to be the projects postponed for up to a year following the 2008 financial meltdown and subsequent curtailment of new contracts. We believe that the new jobs to be awarded - out of Kencana's RM4 billion tenders - are likely to come from India, Middle-East and Southeast Asia.
"We also expect a reacceleration of merger and acquisition activities following the group's recent two-for-five rights issue at 50 sen,"AmResearch said.
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