Petra Energy's 9MFY12 results were ahead of expectations, accounting for 82.6% of our and 87.0% of consensus' full-year estimates. Q-o-q, the results were weaker  due to lower revenue from its Sarawak Shell and Sabah Shell Petroleum contracts,  as well as lower vessel utilization at its marine offshore support services division.  Although  the  YTD  earnings  are  close  to  our  full-year  earnings  forecast,  we  are maintaining our numbers in anticipation of a weaker 4QFY12 due to the monsoon season. Maintain BUY, with an unchanged FV of RM1.94.

Weaker but within expectations. Petra Energy's 9MFY12 net profit beat expectations, accounting  for  82.6% of  our and  87.0%  of  consensus' full-year  estimates,  underpinned by a 7.2% revenue growth and better margins (YTD FY12 EBIT margins: 7.9% vs YTD FY11 EBIT margins: 3.1%). This year's margins were higher compared to the previous year  mainly  due  to  additional  losses  posted  by  its  Kumang  project's onshore  civil engineering services division last year. Nonetheless, we are making no changes to our earnings forecasts in anticipation of weaker results in 4QFY12  as the monsoon season approaches.

Sequentially  worse  off.  On  a  sequential  basis,  revenue  dipped  7.4%  due  to  lower utilization  of  three  out  of  four  vessels  in  its  marine  offshore  support  services  business. Net profit slipped 44.0% q-o-q due to recognition of jobs with lower margins, as well as lower  contributions  from  its  top-side  major  maintenance/hook-up,  construction  and commissioning contracts with Sarawak Shell and Sabah Shell Petroleum.

Looking  rosier  on  the  upstream  side.  Recently  we  obtained  updates  from  the management  with  regard  to  the  company's  USD320m  (RM980m)  marginal  oilfield project. We understand that only preliminary works have been done at this juncture and management may be using a floating, storage and offloading (FSO) or a mobile offshore production  unit  (MOPU)  at  the  oilfield. The  project  will  be  launched  in  two  phases:  i) Phase 1 will involve a USD267m investment for Kapal and Banang in Year 1 and 2, and ii)  Phase  2  will  involve  a  USD53m  investment  in  Meranti  in  Year  3.  Barring  any unforeseen circumstances, management expects to achieve first oil by 2Q13.

Maintain BUY. We are maintaining our BUY recommendation on Petra Energy as there is still a 12.1% price upside to our valuation. We value the stock at RM1.94, pegged to the existing 14x FY13 PE. We had previously pegged the stock to a 13x PE multiple but upgraded it as we believe the entry of Wah Seong into the group  may turn out to be a fruitful partnership in the long run.

Source: OSK