Reiterate BUY; TP unchanged at MYR4.10. While a charter extension for SAKP’s T-9 rig at rates comparable to the previous contract was widely anticipated, it is still positive as it increases the rig’s earnings visibility. Meanwhile, the featuring of SAKP in the FTSE All-World and FTSE Asian Oil and Gas Indexes effective today is another positive, raising the stock’s visibility further. Our earnings forecasts are unchanged. Our TP is pegged to 18x FY1/15 EPS.

T-6 rig charter extended for another three months at similar rates. SAKP has received confirmation from Carigali-PTTEPI Operating Company (CPOC) that it would extend the contract charter for SAKP’s T-6 tender-assisted rig for another 3 months to 20 Sep 2013. The terms are similar to those of the previous contract extension, in both tenure (3 months; 20 May-20 Jul 2013) and daily charter rates (DCRs; USD99k). The extension was widely expected; we have alluded to this possibility before, considering the need to support CPOC’s rising drilling activities.

Expect charter extensions beyond 2013 for eight other rigs. Apart from T-6, charters for eight more rigs (T-3, T-9, T-10, soon-to-be owned West Jaya, West Menang, T-4, T-7, and T-11) from the Seadrill rig purchase (likely to be concluded in Apr 2013) will end in stages throughout 2013. We expect that charters for these rigs to be extended too. Tender-assisted rigs are currently the most utilised drilling assets, which include jack-ups, semi-subs and drillships.

To benefit from rebalancing of FTSE Index. SAKP will be a major beneficiary of the rebalancing exercise, with a higher index weighting. It has been included in the FTSE All-World and FTSE Asian Oil and Gas Indexes in addition to its elevation from a small cap to a large cap classification under the FTSE Global Equity Index Series with a 54% investibility weight. The index change takes effect from 18 Mar 2013.

Expect 4QFY1/13 results to track expectations. Results will be released this Thursday. We expect SAKP to register a core net profit of MYR100m in 4QFY1/13, which would bring its full-year core earnings to MYR535m, in line with our estimates but below consensus. Please refer to our results preview note on 14 Mar 2013 for details.

Source: Maybank Research - 18 Mar 2013