SapuraKencana Petroleum - Within Expectation

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Publish date: Tue, 25 Sep 2012, 09:42 AM

Period 2Q13/1HFY13

Actual vs. Expectations

The 2Q13 net profit of RM176.5m brought 1HFY13 net profit to RM218.2m. The 6MFY13 net profit was within our expectations, accounting for 46.5% of our FY13 net profit (RM469.1m). However, it only achieved 41.3% of the consensus' full year net profit estimate of RM530.8m.

To recap, FY13 earnings are expected to be slightly abnormal as only c.8 months of Kencana's earnings can be recognised (in accordance with acquisition accounting rules).

We have also included Kencana Petroleum's 2HFY11 earnings to arrive at SKPETRO's 2QFY12 and 6MFY12 figures for easier YoY and YTD YOY comparison to 2QFY13 and 6MFY13 results.

Dividends No dividend was declared as expected.

Key Results Highlights

QoQ, the 2Q13 net profit was significantly higher (+>100%) as 1QFY13 earnings were depressed by 1) a loss of a quarter's worth of Kencana's contribution and 2) the majority of the merger expenses were charged in 1QFY13.

YoY, the 2Q13 net profit was estimated to have risen 24.4% due to the increases seen in the offshore construction and subsea services division, with the higher scope of works for SKPETRO's Pan Malaysian project.

For 6MFY13, RM75.4m of merger costs was recognised. We were also guided that some costs have been already recognised in FY12, and an estimated RM20-30m (out of the RM130m guided for) is expected to be amortised over an unguided number of years. As such, further merger costs for FY13 are unlikely. This is a positive surprise for us.

Outlook SKPETRO's strong presence and scale in the domestic EPCIC market both domestically and globally makes it a prime candidate for securing further contract wins. ' The latest order book stands at RM14.5b. The bid book stands at RM25.0b.

Change to Forecasts

The earnings were within expectations but we have reduced our FY13 merger cost assumption to RM90m (from RM130m previously) as we expect minimal of such costs going ahead. Our net profit for FY13 has been raised by 5.6% to RM495.6m (from RM469.1m). We are leaving our FY14 earnings unchanged for now pending the next 3QFY13 results. We have also opted to introduce FY15 earnings only after getting a better gauge of the actual earnings in 2HFY13.

Rating MAINTAIN OUTPERFORM

Valuation Marginal change in fair value to RM2.80 (from RM2.79) based on an unchanged target PER of 20x on CY13 EPS. Premium valuations are accorded (vis-''-vis the 15x sector's average and 18x for MMHE) due to its significant domestic market dominance and service scale range.

Risks 1) High capex plans for company industry could strain growth prospects and 2) Delay in contract executions could result in a lower-than-expected earnings.

Source: Kenanga

SAPNRG (5218)

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