SapuraKencana Petroleum - Bags AUD51mil Australia job Buy

- We maintain our BUY call on SapuraKencana Petroleum (SapuraKencana) with an unchanged fair value of RM2.68/share, pegged to an FY13F PE of 22x (excluding oneoff merger costs of RM131mil), a 10% premium to an average of 20x currently for oil & gas stocks with a market capitalisation of over RM5bil. 

- The group has secured a AUD51mil (RM157mil) contract from Origin Energy Resources Ltd to provide project management, installation engineering, procurement, fabrication, installation and pre-commissioning works for the Geographe discovery, 55 kilometre off Port Campbell, Victoria in Australia.

- This involves the Origin Otway Phase 3 Development, which is being developed by Origin together with its joint-venture partners Toyota Tsusho (Australasia) Pty Ltd and Benaris International Pty Ltd.

- The contract, which will be carried out over a period of 14 months, will involve the use of the installation vessel Normand Clough.

- This contract is relatively small, accounting for 1% of SapuraKencana’s order book of RM14bil. Recall that  the group’s order book is the largest in the country, larger than Bumi Armada’s RM10bil which includes RM3bil renewable options. Accounting for 2.5x of SapuraKencana’s CY12F merged revenues, earnings for the next two years are already locked-in.

- Hence, we maintain our FY13F-FY15F earnings as this contract is already included in our new annual order assumptions of RM5bil-RM7bil.

- We continue to be positive on SapuraKencana, as its tender book of RM12.5bil, half of which stems from overseas projects, will drive the group’s earnings prospects. The group’s 50%-owned joint venture with Seadrill is eager to participate in Petrobras’ next batch of seven flexible pipe-lay vessels. Domestically, we expect SapuraKencana to benefit from fresh news over the next few months from Petronas’ RM15bil fast-tracked programme to develop gas reserves from a cluster of fields in the North Malay basin,  off Peninsular Malaysia as well as other enhanced oil recovery jobs in East Malaysia as well as additional marginal field concessions.

- SapuraKencana’s valuations are compelling at an FY13F PE of 17x compared with SapuraCrest’s peak of 29x back in 2007. The inclusion of the stock in the MSCI Emerging Market and Asia Pacific indices will draw further foreign institutional support, which remains low for now.  

Source: AmeSecurities