KUALA LUMPUR: Kencana Petroleum Bhd’s (Kencana) share price rose 14 sen to RM2.94 and SapuraCrest Petroleum Bhd (SapuraCrest) added five sen to RM4.54 as at 12.20 pm yesterday and upon resumption of trading.

This followed an announcement on Monday on the merger of Kencana and SapuraCrest that will create one of the largest oil and gas companies in the world.

Kencana could possibly touch RM3.20 and SapuraCrest RM5 over the next few months as the move would positively affect the merged entity’s bottom line and long term business, Affin Investment Bank’s head of retail research, Dr Nazri Khan told Bernama yesterday.

Trading in both companies was suspended yesterday pending an announcement on the merger which was undeniably the biggest deal of the year for corporate Malaysia thus far.

Nazri said the value of the stocks also depended on the projects that both companies undertake next year and over the next three years.

“However, the only concern is over the short term as the market’s weakness across the board can affect their stock price movement,” he added.

Yesterday, SapuraCrest and Kencana received separate offers from Integral Key Sdn Bhd (IKSB) to acquire their entire business and undertakings for RM11.85 billion.

IKSB will pay RM5.87 billion for SapuraCrest or RM4.60 per share and RM5.98 billion for Kencana or RM3 per share.

OSK Research Sdn Bhd (OSK Research), in its research note, said the merger was synergistic to both companies as Kencana’s strength lies in its fabrication business while SapuraCrest is good at pipelines and facilities installation as well as the provision of drilling services.

“We see both core business complementing one another, especially in the development of new oil and gas (O&G) platforms,” it said.

It added that size does matter in the industry since it is a highly capital intensive business and being bigger increases a company’s success rate in winning new contracts.

OSK Research believed that Kencana and SapuraCrest were keen on the merger since it would mould them into a bigger entity as well as a more complete ‘one-stop solution provider’ for the O&G industry.

Being bigger would also enable the combined company to compete with its O&G peers while being a ‘one-stop solution provider’ would tie in with Petronas’ style of awarding contracts to a single main contractor which can better manage project costs, timeliness, and delivery quality, said the research house.

Therefore, OSK Research is maintaining a ‘buy’ call on Kencana’s stock with an unchanged fair value of RM3.17, given the stock’s longer term potential.

ECM Libra Capital Sdn Bhd (ECM Libra) in a research report said, “We are sanguine on the prospects of the new merged entity, as it would be able to bid for bigger turnkey projects regionally and globally.

“This is a positive development for the industry and feel it may inspire more mergers going forward,” ECM Libra said in maintaining an ‘overweight’ position on the companies. — Bernama