Petra Energy - Strong Quarter

Petra Energy’s 1HFY12 annualised core net profit came in above our and consensus, at 66.5% and 60.4% of the full year forecasts respectively. The stronger-than-expected earnings were due to stronger revenue from its brownfield services segment. We are revising up our target multiple for the stock to 14x, as we view the Wah Seong–Petra Energy partnership as a synergistic exercise. The FV is thus revised upwards to RM1.94, rolling valuations over to its FY13 earnings, pegged to a target multiple of 14x. Maintain BUY with an upside of 15.5% to the FV.

Beating estimates. Petra Energy’s 1HFY12 core net profit came in above our and consensus expectations. 1HFY12 annualized core net profit accounted for 66.5% of our and 60.4% of consensus, underpinned by stronger revenue which grew 31.4% q-o-q and 12.1% y-o-y. This was due to a stronger contribution from its brownfield services segment, coupled with lower losses from its design, fabrication, supply and installation services segment. There was no revenue contribution from its onshore civil engineering services segment, due to the completion of the Kumang project. On a YTD comparison, core net profit grew by 19.6%, on the back of a 12.1% y-o-y increase in revenue.

Sale likely to be completed towards end  3QFY12. To recap, Perdana is disposing of its entire 26.9% stake in Petra Energy for RM96.9m or RM1.68/share. The exercise is currently pending the approval of Perdana’s shareholders. We view the Wah Seong– Petra Energy partnership as a synergistic exercise especially in further O&G developments, and are therefore taking the opportunity to raise our FY12 and FY13 earnings estimates by 5.7% and 12.5% respectively. Wah Seong is able to contribute its pipe coating expertise while Petra Energy is a specialist in providing brownfield services. We previously applied a target multiple of 13x to Petra Energy’s earnings but we believe that the synergies may help trigger a stock re-rating once the share sale is completed. Hence we are upgrading our target multiple to 14x.

Maintain BUY. We are upgrading our FV from RM1.50 to RM1.94 as we rollover our valuations to FY13, pegged to a higher target multiple of 14x (previously 13x – upgraded as we view the Wah Seng–Petra Energy partnership as a powerful one). With some 15.5% upside to our FV, we are maintaining our BUY recommendation on Petra Energy.

Source: OSK