SapuraKencana Petroleum - Hook-up commissioning work from Kebabangan Buy

- We maintain our BUY call on SapuraKencana Petroleum (SapuraKencana), with a higher fair value of RM3.00/share (vs. RM2.68/share previously), pegged to a higher FY14F PE of 20x vs. 18x earlier – 10% below Kencana Petroleum’s 2007 peak of 22x.

- We have raised FY13F-FY15F net profits by 6%-8% with a 0.5%-margin increase to 23% on expectations of higher synergies between the operations of SapuraCrest Petroleum and Kencana Petroleum.

- SapuraKencana has secured a RM106mil contract from Kebabangan Petroleum Operating Company Sdn Bhd to provide hook-up and commissioning services for the Kebabangan Northern Hub Development Project, offshore Sabah. The work will commence in mid-2012 with completion expected by mid-2014.

- Including this contract, we estimate that SapuraKencana has secured RM2.9bil (including the RM1.3bil extension of the PanMalaysian contract to install pipelines and facilities) of new contracts year-to-date. This is within our new order assumptions of RM5bil for FY13F.

- We estimate that SapuraKencana’s order book has risen slightly by 2% to RM15.7bil – still the largest in the country visa-vis Bumi Armada’s RM10bil. Accounting for 2.5x ofSapuraKencana’s CY12F merged revenues, earnings for the next two years are already locked-in.

- For the rest of the year, we expect fresh contracts to materialise – two wellhead platforms from the Bunga Dahlia and Teratai fields in Blocks 301 & 302, a central processing platform and multiple wellhead platforms from the North Malay gas basin cluster development. 

- We continue to be positive on SapuraKencana as its estimated tender book of RM10bil will continue to drive the group’s earnings momentum, underpinned by asset expansion from the delivery of two deepwater-capable construction  vessels with DP 3 capability in late-2013 to early-2014, together with three flexible pipe-lay Petrobras vessels, one tender rig and semi-tender rig at end-2014.

- For oil & gas fabrication providers, SapuraKencana  is our preferred stock given its strong execution capabilities, huge order book and consistent earnings delivery.

- SapuraKencana’s valuations are compelling at an FY14F PE of 17x compared with SapuraCrest’s peak of 29x back in 2007.The likely inclusion of the stock in the FBMKLCI later  this year could draw further foreign institutional support.

Source: AmeSecurities