- We maintain our BUY recommendation on SapuraKencana Petroleum Bhd (SapuraKencana), with an unchanged fair value of RM5.70/share, based on an FY15 PE of 22x, which is the 2007 peak achieved by Kencana Petroleum.

- We maintain SapuraKencana’s FY15F-FY17F earnings, which will not be affected by changes in shareholder stakes.

- Seadrill has placed out 230mil SapuraKencana shares at RM4.30/share, valued at RM989mil. This will reduce Seadrill’s stake in SapuraKencana from 12% to 8%.

- Seadrill’s chairman and major shareholder John Fredriksen has said that his company, which entered into a lock-up agreement for its remaining stake in SapuraKencana, will remain as a long-term strategic investor in the group.

- We believe that should Seadrill eventually disposes of its entire stake in SapuraKencana, it will be gradual given that Seadrill has a strong business relationship with the group via 50:50 joint ventures in 6 pipe-laying flexible support vessels, each potentially worth US$300mil. These have been chartered to Brazil’s Petrobras.

- According to Fredriksen, Seadrill is currently exploring other business ventures with SapuraKencana. Fredriksen is currently an alternate director to Tor Alav Troim who is a board member of SapuraKencana.

- Following this share sale, Seadrill will be the fourth largest shareholder in the group after Sapura Holdings (16.8%), EPF (11.7%) and Khasera Baru (10%).

- SapuraKencana’s president/chief executive officer, Tan Sri Shahril Shamsuddin is the major shareholder of Sapura Holdings while Datuk Mokhzani Mahathir controls Khasera Baru.

- The changes in shareholder levels does not affect our positive outlook on SapuraKencana’s prospects given the group’s game-changing and earnings-transforming US$898mil (RM2.8bil) acquisition of Newfield International’s oil & gas production blocks in Peninsula Malaysia, Sabah & Sarawak.

- As SapuraKencana is poised to become a truly formidable regional O&G upstream operator, its share price has outpaced the FBMKLCI by 13% over the past 12 months.

- But its aggressive acquisitive earnings acceleration (+107% in FY14 & +59% in FY15F) translates to a still attractive FY15F PE of 16x currently - a 45% discount to SapuraCrest Petroleum’s peak of 29x in 2007. 

Source: AmeSecurities