SAKP’s 2QFY14 headline net profit of MYR410m (+133% y-o-y) lifted its 1HFY14  net  profit  to  MYR504m  (+131%  y-o-y),  while  1HFY14’s  MYR411m  core  net  profit  met  estimates.  The  solid  results  were  driven by stronger revenue, higher contribution from SapuraAcergy and lower tax at its offshore units. Maintain EPS forecast and BUY, with MYR4.96 FV.  The  upside  catalysts  are  earnings,  T&I  contract  wins  and  news  on RSCs.

- Core  earnings  in  line with  expectations.  Excluding  MYR93m  in  forex gain and a MYR2m loss from derivatives, the 1HFY14 core net profit of MYR411m (+74% y-o-y) was in line with expectations. 2QFY14 revenue rose  21%  y-o-y,  thanks  to  higher  tender  rigs  revenue,  while  blended operating margins fell to 12.5% (2QFY13: 14.7%), which we believe was dragged down by the fabrication and hook-up and commissioning (HUC) segment.  Net  gearing  stood  at  1.07x,  with  debt  heavily  tilted  towards short-term  loans  (68%).  Management  guided  for  a  refinancing  exercise in 2HFY14 to optimise its capital structure. We see little refinancing risk.

- Potential  addition  to  strong  MYR24.8bn  orderbook.  The  bulk  of  the current  orderbook  is  from  Brazil  (51%),  followed  by  Malaysia  (24%), South-East  Asia  (17%)  and  Australia  (5%).  Upstream  reported  that SAKP is in the frame for Petronas’ multi-year  transport  and  installation contract,  Total’s Maharaja  Lela  Jamalulalam  South  project  in  offshore Brunei,  as  well  as  Shell’s USD1bn Bonga  Southwest-Aparo  project  in offshore  Nigeria.  We  expect  some  of  the  news  flow  to  turn  into  firm 
contracts, leading to orderbook expansion for the group.

-  Eyeing more RSC contracts. Management was upbeat on its prospects during  the  briefing.  We  understand  that  SAKP  is  bidding  for  three marginal  field  risk-sharing  contracts  (RSCs),  with  Upstream  reporting that Petronas’s Vestigo Petroleum has teamed up with SAKP to bid  for the  Bubu  field  development  in  Terengganu,  Malaysia.  Any  potential development is likely to be viewed as a positive.

- Maintain  BUY,  with  our  FV  unchanged  at  MYR4.96,  pegged  to  22x FY15 EPS. We maintain core EPS estimates and expect SAKP to deliver 42% EPS CAGR, driven by tender rig profits.

Source: RHB