4QFY12 posed no surprises with 8 out of the 12 stocks under our coverage coming in within expectations, but from a consensus standpoint, the results were mixed. Petronas was one of the main disappointments with its CY12 net profit report declining mainly due to its lower productions. Despite the uninspiring result season, contract flows seem to have picked up in 1QFY13, especially in the Offshore Support Vessel (OSV) segment. This signals a good start for 2013 and is one of the main drivers of our bullish view for the sector. Overall, we expect further active news flows for the year given that there seems to be plenty of tenders (from fabrication to hookup and commissioning and offshore installation) that have yet to be awarded. The risks include: 1) potential share price retracements for oil and gas stocks during the impending General Election period, which alternatively, we see as an opportunity for investors to bargain hunt; and 2) the volatility in crude oil prices although this should have a minimal impact on the capex spending of Petronas given that the domestic reserve replenishment concerns remained imperative. SKPETRO (OP; TP: RM3.82) remains as our TOP PICK given its stronghold on the majority of the oil and gas value chain. Its acquisition of Seadrill’s tender-rig fleets will lift its FY14 earnings base by another c.50% and gain it access to more markets (i.e. Angola, Trinidad & Tobago).

1QCY13 review.

A neutral 4QCY12 results season. Similar to the 3Q12 results season, 4QFY12 results revealed no surprises with 8 out of 12 stocks under our coverage coming in within expectations. However, from a consensus standpoint, the results were a mixed bag. Petronas’s 4QCY12 performance was also uninspiring as its CY12 net profit fell some 17.2% to RM49.4m (from RM59.7m in CY11) on the back of declines in the sales volume of crude oil and condensates (due to natural field depletion and reservoir performance) and geopolitical challenges at some of its international operations. Major downgrades by ourselves and the market were for WASEONG (MP, TP: RM1.78) and COASTAL (MP, TP: RM2.10). WASEONG suffered from a poorer product mix due to the lack of high-margin pipes) and COASTAL from lower than expected margins from vessel sales that resulted in its poorer than expected CY12 net profit. The consensus outperformers were ALAM (OP; TP: RM1.09) and PERDANA (OP; TP: RM1.62), which bucked the market’s expectations on better-than-expected margins from their vessel operations, although their results were within our expectations.

Source: Kenanga