Sapura Kencana Petro - OUTPERFORM - 25 May 2012

Date: 
2012-05-28
Firm: 
KENANGA
Stock: 
SAPNRG
Price Target: 
2.63
Price Call: 
BUY
Last Price: 
0.03
Upside/Downside: 
+2.60 (8666.67%)

News    SapuraKencana ('SKPETRO') announced yesterday that it had received the extension for its Transportation & Installation (T&I) project, which was awarded earlier on 24 Dec 2009. The scope of works for 2013 is approximately RM1.3bn.

 To recap, the initial project was for a 3-year tenure and was expected to expire by end-2012.
Comments   We are positive on the extension as it illustrates that SKPETRO's grip on the Malaysian T&I space is still strong.

 We had already expected an extension in the contract to later years. However, the scope of works is less than our assumed revenue of RM1.5bn p.a..

 Nonetheless, we expect incoming projects from Australia to buoy contract flows. Hence, we are maintaining our IPF revenue assumptions of RM2bn and RM2.1bn for now.

Outlook   Positive on merged entity as it boasts significant scale, global track records and service range, due to its variety of assets (e.g. tender rigs, pipelay/derrick lay barges/offshore marine vessels OSV))  and existing strategic partnerships (e.g. Seadrill, Subsea 7).

Forecast   We have incorporated the interest costs (around RM110m p.a.) that will come from the borrowings for the cash payment to shareholders. This moderates our FY13-14E net profit forecasts down by 15.6% and 12.9% to RM598.5m and RM742.0m. 

 That said, we had already imputed for such costs during our initiation piece when deriving our fair value for the stock.

Rating  MAINTAIN OUTPERFORM

Valuation    Based on an unchanged 18x target PER on CY13 EPS of 14.7sen, we are keeping our fair value of RM2.63/share. 

Risks   1) High capex plans for company industry could strain balance sheet and growth prospects; 2) High competition as there is a multitude of players who are highly diversified; and 3) In the event of a downturn in the global economy and the demand for crude oil and gas, demand for its services are will be jeopardised.

Source: Kenanga
Discussions
1 person likes this. Showing 1 of 1 comments

alexhong81

I call this a buy

2012-05-31 13:15

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