- We maintain our BUY recommendation on SapuraKencana Petroleum (SapuraKencana), with an unchanged fair value of RM5.70/share, based on an FY15 PE of 25x, which is the 2007 peak achieved by Kencana Petroleum.

- The Star reported today that SapuraKencana’s chief executive officer Tan Sri Saharil Shamsuddin as saying that the group is looking to bid for Petronas’ production blocks in Vietnam, although the company is not interested in Murphy Oil Corp’s Malaysian assets. Petronas, one of the more established producers in Vietnam, was earlier reported to be hoping to dispose its 5 production blocks in Vietnam for US$300mil (RM956mil).

- Petronas is the operator of Vietnam-based production sharing contracts (PSCs) for Blocks 1 and 2, which host the producing Ruby, Pearl and Topaz fields in the Cuu Long basin, and blocks 102 and 106 which is developing the Ham Rong oil project in the Song Hong basin. Blocks 102 and 106 contain the Thai Binh gas discovery.

- Additionally, Petronas has equity stakes in the Lam Son joint operating company (JOC), the Con Son JOC, the Truong Son JOC, Block 46-Cai Nuoc and in Blocks 103 and 107(operated by PVEP Petroleum Operating Company). Truong Son hosts the Song Doc producing oilfield and Block 46-Cai Nuoc contains the producing Hoa Mai gas field.

- The Lam Son and Con Son ventures are currently in development mode, with Lam Son targeting the Thang Long and Dong Do fields in Blocks 01/97 and 02/97, and Con Son aiming for the Gau Chua-Ca Cho oil project in Blocks 10 and 11-1.

- We are uncertain of which PSCs in Vietnam that Petronas is currently planning to dispose, or the blocks being eyed by SapuraKencana. But we view SapuraKencana’s bid chances as fair given Petronas’ agenda to develop domestic operators into regional players against the backdrop of a likely tight international tender. Hence, pending further details of the potential size of the fields’ reserves and the pricing, we maintain FY15F-FY17F earnings.

- Additionally, Upstream reported that SapuraKencana is negotiating to provide 2 additional flexible pipe-laying support vessels to Petrobras, which will raise the Brazil-based fleet of its 50%-owned JV with Seadrill to eight. Upstream also reported that SapuraKencana’s wholly-owned TL Offshore is leading in the bid to secure a transportation and installation (T&I) contract, potentially valued at US$500mil (RM1.6bil) for the Nam Con Son 2 export pipeline network in Vietham.

- The increasingly visible pipeline of new contracts and expanding earnings base together with its fresh tenders of RM30bil underpin the group’s strong earnings outlook. The stock trades at an attractive FY16F PE of 17x currently – a 41% discount to SapuraCrest Petroleum’s 29x peak in 2007. 

Source: AmeSecurities