E&C spearheaded a stronger 3Q results

SAKP’s 9MFY17 core net profit of RM344.8m (-59.5% yoy) continue to trump ours and consensus forecasts. On a qoq comparison basis, core net profit doubled to RM135.7m on the back of higher revenue and associate/JV contributions coupled with a lower effective tax rate. We raised our FY17E earnings forecast by 50.1%, reversed our earlier FY18E loss assumption and cut our FY19E forecast by 22.9%. Yet we downgrade SAKP to SELL as we lowered our TP to RM1.25 (from RM1.36 previously).

9MFY17 results exceeded earlier guidance

SAKP posted 9MFY17 revenue and core net profit of RM5,838.5m (-26.6% yoy) and RM344.8m (-59.5% yoy) respectively. Result was above ours, consensus as well as management earlier guidance. 9MFY17 revenue is in line with our forecast at 74%, however deviation from core net profit arose due to our weaker-than-expected margins forecasted across the segments. We expect 9MFY17 net profit to narrow as 4Q will likely report a loss.

Sequential results commentary

i. Engineering & Construction (E&C). 3QFY17 revenue doubled to RM1,566.5m (+96.6% qoq, -14.5% yoy) driven by higher activities. In tandem with that, segmental PBT jumped to RM274.1m (+128.3% qoq, -37.9% yoy) as margin increased 2.4ppts to 17.5%.

ii. Drilling. 3QFY17 revenue fell to RM460.4m (-14.4% qoq, -33.6% yoy) due to drop in rigs utilisation rate despite number of rigs in operation qoq remains the same. PBT margin fell 2ppts to 7.4% which resulted in PBT decline widening by 32.4% qoq to RM34m.

iii. Energy. 3QFY17 revenue fell to RM196.5m (-44.4% qoq, -51.7% yoy) impacted by the lower oil lifted at 800kbbl (versus 1.3mmbbl in 2QFY17) coupled with lower lifting price at USD46/bbl (versus USD48/bbl in 2QFY17). PBT barely breakeven at RM1.8m (-68.8% qoq, -73.9% yoy) as margin fell 0.7ppts to 0.9%.

Challenging drilling segment moving into FY18

According to our check on Rigzone, SAKP currently has eight rigs in operation while the remaining are on stacked, in line with management year end guidance previously. Referring to our table (Figure 3) below, three more rigs are expected to come off-hire in FY18.

Source: Affin Hwang Research - 9 Dec 2016