OIL & GAS SECTOR

Pipeline in Headlines

The Star Biz reported that there is a Chinese party keen on developing the pipeline connecting Yan
(Kedah) and Songkhla (Thailand), and the signing ceremony is expected to be tomorrow with the party
looking to invest some RM4bn in the project. Concurrently, the Business Times reported that there is
likely to be a change in shareholders for the pipeline as well as a change in route from the original Yan
to Bachok route.

COMMENTS
There is still concern on the project taking off. Firstly, we believe the project feasibility of the
pipeline as well as the required financing remains a concern. However, putting that aside, we think this
news flow is in line with the previous news out a month ago, whereby Merapoh Resources Corp
(Merapoh), a privately-owned company involved in the O&G business has awarded a US$10bn refinery
project to SK Engineering and Construction Co (SK), which is South Korea’s 3rd largest industrial group
to build a refinery in Yan (Kedah). Now, talk has moved on to the pipeline. Although there was no
mentioned on the pipeline’s length, we believe it could be within the 300km region or even shorter,
depending on the route to be taken.

Our view. If the project goes through, we believe it would boost new capex spending flow into the O&G
industry, thus creating more job opportunities for our local O&G players. We believe the potential
beneficiaries are KNM (Buy, TP: RM1.01), Dialog (Buy, TP: RM1.32), Kencana (Buy, TP: RM2.14)
and Wah Seong (Buy, TP: RM2.78). We also understand that the award of projects would start as
early as 6 months after the refinery and pipeline are finalised.

OSK
August 13, 2009