Quek Buying Kencana But Should You Follow?

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Dec 21 2006
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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 (KLSE : KENCANA : stock-code 5122), sources said. According to Business Times, Quek may buy between 12 and 15 per cent of the company’s shares from existing shareholders.

Kencana is one of seven companies licensed by state oil firm Petroliam Nasional Bhd to build offshore production platforms and reportedly has a 21ha fabrication yard in Lumut, Perak. The company, 53.5 per cent controlled by Datuk Mokhzani Mahathir, is bidding for some RM3 billion worth of deals with probability win of 30 percent.

Stock price of Kencana Petroleum which is trading at a high of RM 1.17 today, 21-Dec-2006, – nearly triple compare to their initial offer price of 41 cents. The Kencana official said the group may raise more funds for expansion from a new placement or rights issue late next year.

Quek who recently sold his shares in OYL Industries Bhd to Japan’s Daikin Industries Ltd for RM7.61 billion is cash-rich and need to invest the huge-pile of money. The companies controlled by Quek include:

  • BIL International Ltd (SIN, BIL), which recently announced a major venture into casino operations in the UK
  • Guoco Group Ltd (HKG : 0053)
  • Southern Steel Bhd (KLSE : SSTEEL, stock-code 5665)
  • Hong Leong Bank Bhd (KLSE : HLBANK, stock-code 5819)
  • Camerlin Group Bhd (KLSE : CAMERLN, stock-code 3751)
  • Hume Industries Bhd (KLSE : HUMEIND, stock-code 3328)
  • Hong Leong Industries Bhd (KLSE : HLIND, stock-code 3301)
  • Malaysia Pacific Industries Bhd (KLSE : MPI, stock-code 3867)

But just because Quek venture into oil & gas industries doesn’t mean investors should blindly jump into the pool. Kencana is currently trading at 22.17 times (based on price at RM 1.14 as of writing time) its forecast earnings of 5.14 cents per share (ended 31 July 2007). As comparison to its’ competitor such as Ramunia Holdings Berhad (KLSE : RAMUNIA, stock-code 7206) which is trading at 14.72 times and OilCorp Berhad (KLSE : OILCORP, stock-code 3697) trading at 13.85 times, it looks like Kencana is quite expensive.

Kencana is trading at current stock-price due to Quek’s factor – it’s fair enough to pay some premium but at 22 times, I would rather invest in either Ramunia or OilCorp which have lesser shares-floated which means the stock price will move faster should it decide to. But in Malaysia, anything can happen as investors are more emotional-driven rather than financial-conscious-driven.

# TIP: Wait for a pullback before you invest Kencana. DO NOT chase-up the stock price (unless you’ve reliable insider information, of course which you can alert me by sending email to FinanceTwitter)

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