SapuraKencana Petroleum Bhd
(Sept 26, RM4.11)
Maintain “add” with target price of RM7: Contributions from SapuraKencana Energy Inc’s (SKEI) oil fields and Seadrill’s rigs shored up SapuraKencana Petroleum Bhd’s second quarter ended July 31, 2014 (2QFY15) net profit by 9% year-on-year (y-o-y) to RM446 million. This led to a 90% y-o-y surge in the first half (1H) net profit to RM955 million, an all-time high.
The absence of an interim dividend was expected. SapuraKencana’s 1H pretax profit hit the RM1 billion-mark for the first time, the result of a series of sequential and strategic capacity-building exercises. Growth was across the board, but the main contributors to the blistering performance were SKEI’s and Seadrill’s assets, which were acquired in February 2014 and April 2013, respectively.
FY15 will mark the first full year of contributions from these assets. We expect steady earnings from the rigs, but nevertheless anticipate a soft second half (2H) due to the Southeast Asian monsoon season in the fourth quarter (4Q) when offshore construction and subsea services typically slow down.
In June, Sapura Diamante, the first of Sapura Navegacao’s six pipelay support vessels (PLSV), started work in Brazil. The second PLSV, Sapura Topazio, will be deployed next month. We expect early profits from both PLSVs in 2H, which should help mitigate the monsoon effect.
A 50:50 joint venture with Seadrill, Sapura Navegacao has two contracts worth US$4.1 billion (RM13.3 billion) with Petrobras. We continue to value the stock at 23.4 times CY15 price-earnings (PE), a 40% premium to our implied target market PE of 16.7 times, but still within the historical PE range of the oil & gas big caps.
We maintain our “add” rating, with strong order book momentum and a successful exploration and production venture as potential rerating catalysts. SapuraKencana remains our top pick among the oil & gas big caps. — CIMB Research, Sept 25
This article first appeared in The Edge Financial Daily, on September 29, 2014.