SKPETRO is one of our Top 10 Picks for our 2QCY13 Investment Strategy for its significant scale, service range and established domestic and global track records. For now, the company is looking to complete the Seadrill tender-rig acquisition deal (worth USD2.9b) by May 2013, and this could lift its FY14 earnings by another 53.1% to RM1.14b (from our current estimated RM774.3m). Its first marginal field contribution from Belantai has kick-started in 4QFY13 and a full contribution is expected in FY14. On the bid front, SKPETRO is hoping to secure more Pipe-lay Support Vessel (PLSV) contracts from Petrobras and we believe the group’s chances are high given that it is one of the only two shortlisted bidders. Given our confidence in the company, we have an OUTPERFORM call on the stock with a fair value of RM3.82 based on an implied CY13 PER of 26.5x. We have tactically raised our implied target PER to account for the estimated potential earnings from the Seadrill tender rig acquisition.
One of the most diversified domestic upstream oilfield services player. SKPETRO is one of the largest non-Petronas linked players (market capitalisation of RM15.0b) on Bursa Malaysia with services ranging from the exploration to production segments of the oil and gas value chain. Its strong forte is in the development phase where it can provide drilling, engineering, procurement, construction, installation and commissioning services.
A growing international track record. Besides having an established domestic presence, SKPETRO is also steadily growing its global track record. It has performed work in countries like India, Vietnam, Japan and Australia but the tipping point came in 2011 when it won a RM4.3b project from Petrobras. Post the Seadrill tender-rig acquisition, it will gain access to markets like Angola, Trinidad and Tobago. This diversification in geographical segments mitigates the seasonal factors that the group bears during the respective region’s monsoon seasons.
Order book still “best in the industry”. As at Jan-13, SKPETRO’s order stood at c.RM13.6b. Post the acquisition of the tender-rig fleet from Seadrill, this is estimated to grow by another RM4.6b to RM18.2b. In comparison to the other local heavyweights, MHB has an order book of RM3.0b while ARMANDA has an order book of RM10.7b. For 2012, SKPETRO has locked in RM4.1b of wins.
Securing another Brazilian win? According to Upstream Online, SKPETRO is bidding for more PLSV contracts in Brazil. These projects are purportedly larger in value and longer in tenure (8+8 years) if compared to the previous RM4.3b contract. SKPETRO's chances for these PLSV projects from Brazil seem high given it is now one of the two shortlisted bidders. Beyond that, we believe SKPETRO’s tender book will reach around RM11-12b.
Closing in on Seadrill tender rig deal. Management hopes to conclude the acquisition by end-Apr 2013, which will lead to a potential 9-month contribution for FY14. Overall, management is excited as the new assets will extend its reach to new markets (i.e. to countries like Angola, Trinidad and Tobago). Management highlighted the possibility that there could be new applications for its tender-rigs (i.e. beyond just the shallow-water application) in the future, of which would creating more opportunities for the group moving ahead.
Source: Kenanga
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