Following a reallocation of coverage, we took a closer look at our forecasts for SapuraKencana Petroleum (SAKP) and tweak our numbers. We maintain our BUY call on the stock, but with a higher MYR4.96 FV (previously MYR3.96) as we roll over our valuation to 22x FY15 EPS (previously 21x FY14 EPS). This would be more representative of SAKP’s full-blown earnings. SAKP is our top large-cap oil & gas pick.

- Earnings visibility intact. As at end-Mar 2013, SAKP’s orderbook stood at MYR18.2bn. We note that some MYR8bn worth of orders will be recognized in FY14 while the remaining MYR10bn will accrue to FY15. The company’s large order book comprising a mix of short and long term contracts will provide it with a healthy stream of revenue.

- Tendering for more than MYR18bn worth of jobs. We understand from industry sources that SAKP is currently bidding for more than MYR18bn worth of jobs, including Petrobras’ seven pipelay support vessels (PLSVs) worth some MYR7bn-MYR8bn. We believe that the group will also secure a slice of the tenders from the Pan-Malaysia hook-up and commissioning (HUC) project as well as the transportation and installation tenders relating to the upcoming Pan-Malaysia project.

- Tweaking our forecasts. After a reallocation of coverage, we took a closer look into our financial forecasts and revised our estimates. We raise our FY14 and FY15 revenue forecasts by 8.0% and 5.6% respectively while nudging down our net profit forecast by 4.6% for FY14 but raising that for FY15 by 2.3%.

- Stock still a strong BUY. Despite the recent surge in its share price, we still see room for upside as investors will look towards SAKP’s FY15 earnings. Our FV is premised on 22x FY15 EPS, which represents a 37% premium to the sector average. We deem this premium justifiable given the group’s: i) MYR18.2bn-strong order book, and ii) FY13 to FY16 earnings CAGR of 45.1%. The stock is our top large-cap pick within the oil & gas space.

Source: RHB