News Yesterday, SapuraKencana Petroleum (SKPETRO) announced that it has secured four drilling contracts worth a cumulative USD454m (RM1.47b). One of the drilling contracts was new; whilst the other three were extensions.
Rigs involved in the contracts were: SKD Berani (USD108m for 1 year (inclusive of mob fee)); SKD Setia (USD164m for 2-yrs); SKD Pelaut (USD92m for 2-yrs) and T-12 (USD90m for 2-yrs).
Comments We are positive on these wins as they: (i) symbolise that there is still demand for SKPETRO’s rigs in spite of their ages (only T12 is fairly new at 4-years; SKD Berani, Setia and Pelaut are at an average age of 12 years).
We were also heartened to see better daily charter rates (DCR) for all the wins especially for SKD Berani that we estimate had the most significant DCR jump (>50%). The other rigs had an average 2.8% jump in rates.
These new wins bump up the drilling division’s revenue and net profit by 24.7 and 37.9%, respectively, and imply a 6.9% and 7.1% increase in FY14-15 EPS forecasts.
Outlook At our last count SKPETRO’s order book stood at RM25.5b, hence these new wins bump up order book to RM27b.
Tender book was guided to be within RM25b.
We believe SKPETRO is scheduled to: (i) begin the new campaign for Pan-Malaysia Transport and Installation (T&I) contract, (ii) receive two DLBs and KM-2, (iii) kick-start two Brazilian pipelay-support vessels (PLSV), and (iv) account for Newfield’s earnings in CY14. These will provide near-term catalysts for the stock.
For Newfield project; Targets are to transform the discoveries to 2P reserves by end-CY14. For now the SK310’s resources are estimated to be at 1.5-3.0 tcf.
Forecast We maintain our FY15-16 forecasts for now pending an upcoming meeting with management where we look to further fine-tune our estimates.
Rating Maintain OUTPERFORM
Valuation Our TP of RM5.57 is unchanged based on a CY15 EPS of 26.5 sen and target PER of 22x.
The c.20% premium ascribed to SKPETRO (versus the 18x PER ascribed to MMHE) is justified, in our view, as it is the only integrated Malaysian upstream play.
Moreover, the stock is currently still attractively priced at CY14-15 PER of 19.9-17.0x (vis-à-vis other heavyweights such as UMW O&G that trades at CY14-15 PER of 30.2-18.8x.
Risks to Our Call (i) Lower-than-expected margins for business segments
(ii) Lower-than-expected contract replenishment.
Source: Kenanga
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