We maintain our Buy call on SapuraKencana with an unchanged fair value of RM3.96. We remain positive on SapuraKencana’s earnings outlook, underpinned by its extensive oilfield service capabilities, which allows it to undertake major oilfield services contracts, overseas and locally. Completion of its tender rig business would provide further earnings upside of approximately 18-20% in FY01/14.

Proposed placement. In respect to its acquisition of Seadrill’s tender rig business, SapuraKencana announced that it has entered into an agreement for the proposed placement of 587m new shares (11% of existing shares) at an issue price of RM2.80 per share. This would raise approximately RM1.64bn.

New placement to replace REPS. Recall that SapuraKencana initially proposed to raise part of the cash through preference shares (REPS) which are convertible to ordinary shares on a 1-to-1 basis. The proceeds from the base placement and the REPS were expected to raise approximately RM1.6bn. This new proposed placement would no longer require SapuraKencana to issue the REPS.

Deal to be complete by May. As we highlighted in our briefing note dated 25 Mar, SapuraKencana is expected to hold an EGM to obtain shareholders approval for the Seadrill deal in mid-April.

Forecasts. No change to our earnings forecast.

Investment case. We remain positive on SapuraKencana’s earnings outlook. Our fair value is unchanged at RM3.96, based on 21x FY01/14 EPS. We reiterate our Buy call on the stock.

Source: RHB