We reaffirm our positive view on Petra Energy (PENB) after our recent corporate luncheon meeting. We believe prospects should turn around, underpinned by a marked improvement in earnings visibility as current high oil prices should boost KBMRSC’s profitability. Also, we expect the increased work orders from the recently awarded MCM contract and spill-over from 2017 projects to provide further potential upside to earnings. Petra is notably one of the key beneficiaries of higher oil prices under our coverage. Maintain BUY with RM0.83 target price.

Ride the Oil-price Recovery

PENB is one of the best proxies to ride the oil price recovery due to its 30% stake in the Kapal, Banam, Meranti (KBM) risk-sharing contract (RSC). We believe the current high oil-price environment provides a good opportunity for it to undertake production enhancements on the field. On our estimates, field production could be ramped 50% higher from the current 4,500bbl/day by December 2018. We also see the possibility of an extension or renewal of the RSC, which expires by mid-2020, due to the current high oil prices and its good production track record.

Recovering Hook-up and Maintenance Outlook

To recap, PENB has an outstanding orderbook of RM1.6bn, comprised of RM1bn from the Petronas MCM and the remaining RM600m from the Pan Malaysia hook-up. We understand that the hook-up contract, which expires in 2018, will be up for renewal. Management is currently bidding for a Pan Malaysia 5-year extension.

Rising Demand for Decommission and Abandonment Projects

Demand for decommission and abandonment works is expected to be on the rise moving forward due to ageing platforms, facilities and pipelines. According to our channel checks, approximately 40% of Petronas’ platforms and pipelines are more than 30 years old. We believe this could be a market that maintenance players like PENB can tap into for further growth opportunities.

Maintain BUY

Overall, management echoed our view on an improved outlook for the maintenance players. In addition, PENB is also well-positioned to benefit from the recovery in oil prices, as mentioned above. With that, we maintain our BUY call and unchanged 12-month SOTP target price of RM0.83.

Source: Affin Hwang Research - 30 Apr 2018