Results

• Inline: 9MFY15 core profit increased 51% yoy and made up of 74% and 71% of HLIB and consensus full-year estimates, respectively.

Deviations

• None.

Dividends

• Declared interim of dividend of 2 sen per share.

Highlights

• 3QFY15 core profit surged 30% yoy mainly due to inclusion of Newfield assets and better margin from OCSS segment. However, QoQ dropped 4% as energy division registered lower revenue due to lower net production coupled with weakness from OCSS and fabrication.

• For Petrobras job, we were reassured that payment is on time and has received it 30 days after invoice. Both Sapura Diamante and Sapura Topazio have been delivered and expected to contribute in FY16.

• Latest orderbook stood at RM26bn with majority from Brazil and Malaysia while tender book is slightly below that.

• Potential inking of gas sales agreement in 1QCY15 will upgrade the 2C reserves from SK310 field to 2P reserves. Both SK310 and SK408 gas fields are expected to start production in 2017 and 2018, respectively with significant development cost of around US$727m over 2-5 years in order to monetise the asset.

• To recap, SapuraKencana has recently announced to acquire three blocks of oil assets from Petronas Carigali in Vietnam purchase p[rice of US$400m. The acquisition is expected to increase 2P oil reserves by 80% to 39mm boe. This is aligned with the company strategy to grow its reserves size.

Risks

• Execution risk,
• Escalation of vessel and fabrication costs,
• Plunged in oil price.

Forecasts

• FY16 earnings are reduced by 11% after factored in lower crude oil price assumption of US$75/bbl in FY15 versus US$100 previously.

Rating

BUY

Positives

• Strong balance sheet and knowhow, global trendtowards offshore production.

Negatives

• Increased competition for growth markets,complexities of running a larger organization, plunged in oil price.

Valuation

• Maintain BUY call with TP reduced from RM3.73 to RM3.30 based on unchanged 14x P/E post earnings downgraded.

Source: Hong Leong Investment Bank Research - 10 Dec 2014