Last  Friday,  SapuraKencana  Petroleum  (SKP)  announced  that  its  wholly-owned subsidiary, Geomark SB, had entered into a share sale agreement with Quippo Prakash Marine Holdings Pte Ltd (QPMH), MDL Energy Pvt Ltd (MDL) and Quippo Oil and Gas Infrastructure  Ltd  (QOGIL)  to  acquire  74k  ordinary  shares  of  SGD1.00  each  in  QP  for USD22.5m, equivalent to 74% of the latter's issued and paid-up capital. Incorporated in Singapore,  QP's  principal  activity  is  marine  vessel  chartering.  The  acquisition  is expected to be completed within two months. 

Rationale of the acquisition. SKP will gain full control of QP's vessels in order to better manage the latter's operational schedules and costs.

Positive news, but our FY13-14 forecasts are unchanged. Although the historical net profit  guidance  for  QP  provided  in  the  announcement  was  USD3.9m  (RM12.1m)  for  31 March 2012, the potential net profit contribution of about RM9.0m is immaterial to our full-year  FY13  and  FY14  net  profit  forecasts  of  RM721.6m  and  RM761.9m  respectively. Hence, we are keeping our FY13-14 earnings projections unchanged for now.

SKP  remains  our  top  pick  for  the  O&G  sector,  besides  Dialog.  We  like  the  merged entity  for  being  a  full-fledged  engineering,  procurement,  construction,  installation  and commissioning  oil  and  gas  (O&G)  provider.  With  this  business  model,  we  believe  the group will be well positioned to target the large-scale and more lucrative O&G projects in and outside Malaysia. As a one-stop solution provider, SKP will be able to take on the role of  main  contractor  and  hence,  reap  higher  project  margins,  as  it  is  likely  to  be  awarded entire contracts rather than given piecemeal jobs.

Maintain  Buy.  Our  fair  value  for  SKP  is  RM2.88,  based  on  a  PER  of  20x  FY13  EPS. Going forward, we think there are still many opportunities for SKP to beef up its orderbook further in the coming months, especially from Petronas, which should also be increasing its local exploration and production capex to temporarily substitute the loss of production from its Sudan operation.

Source: OSK