Results

FY14 profit increased 81% yoy and made up of 98% and 87% of HLIB and consensus full-year estimates, respectively.

Deviations

We deemed the result below expectation as there is one off tax credit of RM65m in 4Q.

Highlights

4QFY14 revenue fell 3.7% yoy due to lower revenue from OCSS segment as the Domgas project reached its completion stage and partly mitigate by inclusion of revenue from tender rig business. QoQ revenue fell 21% following the completion of Pan Malaysia T&I and slowdown in fabrication jobs. However, 4QFY14 net profit surged 154% yoy mainly due to inclusion of revenue from tender rig business and one off tax credit of RM65m.

FAB & HUC segment remain weak with revenue falling 38% yoy as a few projects are nearing completion stage and lack of work flow. However, we expect increasing fabrication job order going forward and estimated more than RM10bn worth of potential contract to be awarded. Several centralized processing platforms (CPPs) are likely to be awarded in 2014 such as Semarang, Bokur, Dulang, Guntong, Baram, Delta and Sepat.

We believe the recent acquisition of Newfield’s asset will help SapuraKencana to diversify its portfolio of business and gain immediate foothold and recognition as an upstream resource owner and operator. To note, there will be upside to the current 2P reserves of 36m given the huge estimation of GIIP for SK310 and SK408 gas fields. To note, the new gas fields would only start production in 2016 and 2017 with significant development cost of around US$727m over 2-5 years in order to monetise the asset.

Risks

Execution risk, escalation of vessel and fabrication costs.

Forecasts

Unchanged pending analyst briefing later.

Rating

BUY

Positives – Strong balance sheet and knowhow, global trend towards offshore production.

Negatives – Increased competition for growth markets, complexities of running a larger organization.

Valuation 

Maintain BUY call with an unchanged TP of RM4.92 based on 20x FY01/16 EPS of 25 sen/share.

Source: Hong Leong Investment Bank Research- 25 Mar 2014