Journey to Wealth
SapuraKencana Petroleum - Locked-in earnings prospects Hold
- We maintain our HOLD recommendation on SapuraKencana Petroleum (SapuraKencana) with an unchanged fair value of RM2.60/share, pegged to an FY14F PE of 18x ' 20% above the oil & gas sector's 15x currently.
- We maintain SapuraKencana's FY13F-FY15F net profits as the group's 1HFY13 results were in line with expectations, with a net profit of RM218mil that accounts for 36% and 37% of our and consensus FY13F estimates, respectively.
- The group's 2QFY13 net profit surged 4.2x QoQ largely due to the partial merger costs of RM75mil (vs. the prospectus' estimated RM131mil) and absence of contributions from Kencana Petroleum in 1QFY13 as the merger with SapuraCrest Petroleum was only completed on 15 May 2012. Hence, we caution against annualising the maiden result of the merged entities in comparing against estimates.
- We expect the group's offshore construction, hook-up & commissioning and installation activities to remain strong QoQ in 3Q but taper off towards the year-end monsoon period. The higher scope of works for the Pan-Malaysian umbrella installation contract in 2Q-3QFY12 is expected to slacken towards the end of the year whilst SapuraClough's work on the Australia's Montara Development would have been completed.
- SapuraKencana's order book was largely unchanged QoQ at RM14.5bil (see Chart 3 for geographical breakdown) with the group securing RM4.1bil of new projects year-to- date. The group expects to secure RM5bil-RM6bil annually, with its potential tenders worth up to RM25bil.
- For the rest of the year, we expect a higher magnitude of newsflow for hook-up, construction and commissioning (HUCC) works vs. pure fabrication jobs. The tenders which the group is bidding for include the RM8bil-RM10bil PanMalaysian umbrella HUCC contract and RM600mil subsea maintenance job, which is scheduled to be announced by the end of this year.
- Separately, the group's recent arbitration proceedings to claim RM438mil in losses against ONGC for variation orders in its 2006 revamp job for Mumbai High Southfields' 26 well platforms are likely to be a protracted affair.
- SapuraKencana's valuations are currently fair at an FY14F PE of 16x, above the sector's 15x. We also do not discount the possibility of Seadrill disposing of its remaining 6% in SapuraKencana to fund its asset expansions in Brazil.
Source: AmeSecurities
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