OCBC INVESTMENT RESEARCH, May 23

OIL price is still up 40 per cent year-on-year in spite of recent price weakness. The combination of high oil prices, rig replacement needs and higher newbuild prices at established rig builders should continue to drive demand for rig and rig-related capital equipment refurbishment.

We have raised our FY07 net profit projection by 4.3 per cent to $49.8 million, and forecast FY08 net profit at $59.7 million, to account for the two recently announced contract wins. Our FY06 net profit estimate is unchanged at $39.8 million.

KS Energy's fortunes are expected to benefit from the tight supply of rigs and rig-related equipment and parts, its superior and wide industry contacts as a leading distributor in the oil and gas industry, and the opportunities brought in by the new Indonesian major shareholders.

We believe that the recent broad market weakness has spread unnecessarily to KSE, which now trades at attractive 11.9x FY06 PER and 9.5x FY07 PER. Our $2.68 fair value estimate remains pegged at 16x FY06 PER, and offers 35 per cent price upside potential. We have upgraded KS Energy to a 'buy' rating. BUY

《The Business Times》