- We maintain our BUY recommendation on SapuraKencana Petroleum Bhd (SapuraKencana), with an unchanged fair value of RM5.70/share, based on an FY15 PE of 22x, which is the 2007 peak achieved by Kencana Petroleum.

- The Star reported today that Datuk Mokhzani Mahathir and the family of the late Chong Hin Loon are the vendors of 190mil existing SapuraKencana shares, which were crossed off-market at RM4.30/share to 7 institutions, which largely comprise government-linked investment companies. This accounts for 3% of SapuraKencana’s total shares. The late Chong’s family sold the bulk of the shares (100mil) while Mokhzani sold 90mil.

- Mokhzani, the son of former Prime Minister Tun Dr Mahathir Mohamad, is currently SapuraKencana’s non-executive director and was one of the founders of Kencana Petroleum, which later merged with SapuraCrest Petroleum.

- While there is no official announcement yet and if the newspaper report is accurate, Mokhzani’s stake in SapuraKencana will decline from 13% currently to 12% while the Chong’s family’s stake will decline from 2% currently to a negligible level.

- As Mokhzani’s private investment vehicle Kencana Capital currently has an 18.5% equity stake in another oil & gas player Yinson Holdings, speculations have emerged that Mokhzani may eventually dispose his entire stake in SapuraKencana.

- Presently, SapuraKencana’s strategic and operational direction is helmed by its president/group chief executive officer Tan Sri Shahril Shamsuddin who has a 17% equity stake in the company.

- While Mokhzani’s presence in Kencana Petroleum was crucial in steering its growth and operational performance over the years, the operations of the much larger SapuraKencana is now in the hands of professionals groomed in both Kencana and SapuraCrest.

- As such, we remain positive on SapuraKencana’s prospects given the group’s game-changing US$898mil (RM2.8bil) acquisition of Newfield International’s oil & gas production blocks in Peninsula Malaysia, Sabah & Sarawak.

- As SapuraKencana is poised to become a truly formidable regional O&G upstream operator, its share price has outpaced the FBMKLCI by 46% over the past 12 months.

- But its aggressive acquisitive earnings acceleration (+94% in FY14F & +53% in FY15F) translates to a still attractive FY15F PE of 17x currently - a 41% discount to SapuraCrest Petroleum’s peak of 29x in 2007.

Source: AmeSecurities