- We maintain our BUY recommendation on SapuraKencana Petroleum (SapuraKencana) with an unchanged fair value of RM5.70/share, based on an FY16F PE of 22x, which is the 2007 peak achieved by Kencana Petroleum.

- We maintain SapuraKencana’s core FY15F-FY17F net profit as its 1QFY15 core net profit of RM334mil was within our and consensus expectations – accounting for 24% of our FY15F estimate and 22% of street’s RM1,460mil. This excludes oneoff pre-acquisition economic benefit of RM178mil from Newfield’s Malaysian production assets, which was acquired on 11 February 2014.

- But as the group declared an unexpected interim tax-exempt dividend of 2.35 sen (including a special 1 sen), we have raised our DPS by 2.2 sen for FY15F and 0.1 sen for FY16FFY17F (assuming a dividend payout of 5%).

- Excluding exceptional items arising from the Newfield preacquisition income and 4QFY14 one-off transaction costs, SapuraKencana’s 1QFY15 net profit rose by 12% QoQ largely due to a seasonal rebound in the offshore construction division, which was not as active during the monsoon season in 4QFY14. This was partly offset by a weaker drilling performance due to the loss of income from the West Menang tender rig which was undergoing unscheduled maintenance for 70 days due to a fire incident.

- On a YoY comparison, SapuraKencana’s 1QFY15 earnings surged by 134%, propelled by the Seadrill tender rig acquisition in April 2013 and the maiden contribution of the Newfield assets.

- The group also announced that it has secured US$415mil (RM1.3bil) in contracts to provide engineering, procurement, construction, installation and commissioning (EPCIC) for 2 projects – 3 remote wellhead platforms in the North Malay Basin for Hess Exploration & Production, and 4 wellhead platforms and subsea pipelines for JDA Block B-17 and B17- 01 Field Phase 3 Development project for Petronas Carigali.

- Since the beginning of 2014, the group has secured RM6.1bil in new contract awards. Including the recent drilling charter awards, the group’s order book has risen by 18% QoQ from RM25.4bil to RM30bil (2.7x of FY15F revenue) and remains the largest within the O&G sector – above Bumi Armada’s firm orders of RM22.7bil.

- We remain positive on the group’s order book accretion and it remains on the prowl for fresh tenders of RM30bil, as bids for Malaysia’s prolific central processing platform projects could materialise towards the end of the year. The stock still trades at an attractive FY16F PE of 17x currently – a 41% discount to SapuraCrest Petroleum’s peak of 29x back in 2007.

Source: AmeSecurities