INVESTMENT HIGHLIGHTS

• SapuraKencana Petroleum’s (SAKP) 3QFY17 reported earnings staged a growth of +21.7yoy to RM158.1m

• Surge in other operating income of RM1.3b was largely due to the proceeds from Berantai RSC cessation in 2QFY17

• Core revenue and operating profit for all segments declined on year-over-year basis

• Utilisation rate for tender rigs at 50%

• Maintain NEUTRAL (positive bias) with unchanged TP of RM1.71 per share

Earnings surprise. SAKP’s 3QFY17 earnings grew by +21.7%yoy to RM158.1m despite revenue decreasing by -23.1%yoy to RM2.2b. We believe that the favourable results were due to aggressive cost cutting strategies put in place throughout the year. Recall that in 2QFY17, there was a lumpy jump in other operating income arising from the cessation of the Berantai field RSC (RM1.3b). Excluding this one-off lump sum booking, the group’s normalised 9MFY17 earnings is RM343m.

Engineering & Construction. Segment revenue and operating profit declined by -25.9%yoy and -45.8%yoy respectively. The lower revenue was largely due to lower activity levels but the operating profit was partially lifted by higher JV income.

Drilling. Both Drilling revenue and operating profit also declined by - 27.9%yoy and -50.1%yoy respectively due to idle rigs. As of October 2016, eight of 16 rigs were stacked and the utilisation rate is expected to stay at 50% till FY18.

Energy. The company’s Energy segment continues to be under stress as revenue declined by -33.5%yoy, but managed to stage an operating profit compared with a year earlier. The company lifted 0.8mmboe at an average lifting price of USD46pb in 3QFY17 compared with 1.3mmboe and 1.1mmboe in 2QFY17 and 1QFY17 respectively. The estimated total volume to be lifted in FY17 is 4.0mmboe and as such, 4QFY17 could yield a production level of approximately 0.8mmboe.

Orderbook update. Approximately RM4.2b worth of jobs has been secured year-to-date in FY17 and current total orderbook stands at approximately RM17.2b (after excluding Berantai RSC’s portion). A remaining estimated RM2.0b is to be recognised in FY17 (assuming status quo) while a further RM4.9b is to be recognised in FY18 and the remaining RM10.3b to be recognised in FY19 and beyond.

Source: MIDF Research - 9 Dec 2016