Period  2Q15/1H15

Actual vs. Expectations SapuraKencana Petroleum (SKPETRO) reported 2Q15 core net profit (CNP) of RM352.1m, bringing the 1H15 CNP to RM686.4m. This made up 50% of our full-year FY15 estimates (RM1.38b) and 47.6% of consensus (RM1.44b).

 Our core 1H15 net profit forecast excludes RM20.9m forex gain, RM177.8m gain arising from acquisition of Newfield in 1Q15, RM7.3m gain on disposal of PPE and RM63.5m write-back of provisions in 2Q15.

Dividends  No dividend was declared in 2Q15.

Key Results Highlights  In 2Q15, QoQ core net profit was marginally up by 5.3% mainly due to better performance by the OCSS division post the monsoon season. This actually mitigated the slowdown in: (i) the drilling and energy services division caused by lower drilling rig utilisation (on the back of some rigs being in-between jobs) and some underlift adjustments for the Newfield production activities and (ii) JV earnings from SapuraAcergy as the Gumusut-Kakap contract was largely completed in 1Q15.

 YoY, earnings were up 17.6%, again largely due to the better OCSS business with more work performed by the TLO division and the inclusion of Newfield assets.

 Overall, improvement from the OCSS and the EJV divisions helped propel 1H15 net earnings by 55.1%.

Outlook  SKPETRO’s latest orderbook stands at RM26b with the individual division contributions being: 62% - OCSS; 19% - drilling; 10% - EJV and 9% - FHUC.

 Two Petrobras PLSVs (Diamante and Topazio) are expected to kick-start in 2H14 and we have incorporated some earnings impact in our JV forecasts at this juncture.

 For Newfield projects, targets are to transform the SK310 discoveries to 2P reserves by end-CY14. For now, the resources are estimated to be at 1.5-3.0 tcf.

Change to Forecasts   We maintain our forecasts for now given that the 2Q15 result is within expectations.

Rating Maintain OUTPERFORM

Valuation  Our TP of RM5.57 is unchanged based on a CY15 EPS of 26.5 sen and target PER of 21x.

 The c.20% premium ascribed to SKPETRO (versus the 18x PER ascribed to MHB) is justified, in our view, as it is the only Malaysian integrated upstream player (from E&P to installation) and also has exposure to global O&G markets.

Risks to Our Call (i) Lower-than-expected margins for business segments

 (ii) Lower-than-expected contract replenishment.

Source: Kenanga