Petra Energy (PENB) informed Bursa Malaysia yesterday that its wholly-owned  subsidiary,  Petra  Resources  SB,  was  on  21  May  awarded  a contract  by  Petronas  Carigali  to  provide  hook  up,  commissioning  and topside  major  maintenance  services  for  five  years.  Given  the  limited upside to our FV of MYR2.34, we retain our NEUTRAL recommendation.

-  Five-year  contract. While  the  announcement  did  not  state  the  value  of the  contract,  the  press  and  other  industry  sources  have  speculated  that PENB had won some MYR2.5bn worth of orders from Petronas Carigali. This  may  potentially  enhance  the  company’s  revenue  by  some MYR500m annually over the next five years.

- Factoring in MYR2.5bn. We are incorporating some MYR2.5bn worth of orders  for  PENB’s  orderbook,  which  will  raise  our  revenue  forecasts  for FY13  and  FY14  by  7.4%  and  11.2%  respectively.  Accordingly,  we  also raise our net profit forecasts by 18.2% for FY13 and 22.9% for FY14.   

- Maintain  NEUTRAL.  While  the  latest  contract  should  lift  the  Group’s earnings  visibility  over  the  next  five  years,  we  retain  our  NEUTRAL  call for  now  as  we  still  have  concerns  over the company’s  weak  operating margins given its poor operating record. Our FV is based on 15x  on the stock’s FY14  EPS  and  includes  a  DCF  valuation  for  PENB’s marginal oilfield  worth  MYR0.23.  The  stock’s  key  re-rating  catalysts  are  i) improving  operating  margins,  and  ii)  faster  than  expected  development for its marginal oilfield project.

Source: RHB