SapuraCrest Petroleum - US$263mil shipbuilding award to Brazil yard BUY

We reiterate our BUY call on SapuraCrest Petroleum (SapCrest), with an unchanged fair value of RM5.44/share, based on an unchanged CY12F PE of 22x for the group’s merged earnings with Kencana Petroleum.

SapCrest has entered into a contract with Brazil-based OSX Construção Naval S.A. (OSX) to build a 300 tonne-pipelay support vessel (PLSV). This involves the provision of detailed design, engineering, procurement of all equipment, construction, assembly, installation, completion, testing, survey, commissioning, sea trials and successful delivery of the vessel within 36 months from 15 December 2011 to 15 December 2014. 

This award to a Brazilian yard is expected, given Petrobras’ local content requirement in the award of the three PLSV charter contracts worth US$1.4bil (RM4.2bil) in November last year. Rio de Janeiro-based OSX, formerly known as OSX Estaleiros S.A and a subsidiary of OSX Brasil S.A, engages in shipbuilding and repairing services. OSX, which has a shipbuilding division in partnership with Hyundai Heavy Industries, also supplies ships and other equipment to the oil and gas industry. While SapCrest did not reveal the fixed lump sum cost of the vessel, OSX Brasil SA announced its value at US$263mil (RM789mil).

Recall that SapCrest had earlier awarded the construction of two 550-tonne pipelay support vessels to Netherlands-based IHC Offshore & Marine at an undisclosed price in January this year. The two vessels are to be completed and delivered within 30 and 33 months in May 2014 and August 2014, respectively. But given that the construction costs of Brazil yards are more expensive, we believe that the basic construction costs of all three vessels are below US$789mil. Translating into 56% of the PLSV charter contract, SapCrest appears to have a comfortable margin. 

The three PLSVs will be owned, managed and operated by a 50:50 joint venture with Norway-based Seadrill Ltd. Seadrill is still aiming to list Seabras in Brazil in April this year and plans to inject its stake in the three PLSVs together with three ultra-deepwater semisubmersibles and three drill ships. 

The group’s order book remains at an estimated RM13bil, which will last until 2019, and is the largest by far in the sector. As this outsourced construction contract does not increase the group’s order book, we maintain FY12F-FY14F earnings. The stock currently trades at an attractive FY13F PE of only 19x, vis-à-vis its 2007 peak of 29x.  

Source: AmeSecurities