Period 3Q13/9M13
Actual vs. Expectations The 3Q13 core net profit of RM140.9m
brought 9M13 net profit to RM358.8m. This was within our expectations at 72% of
our full year net profit estimate of RM495.6m. However, it was below (at 66%)
the consensus expectation of RM543.8m. The core net profit excludes the RM42m
one-off gain adjustment that accounts for the reserves arising from additional
investment in Quippo- Prakash.
Note that we have included Kencana Petroleum’s estimated
9MFY12 earnings to arrive at our SKPETRO’s 3QFY12 and 9MFY12 figures for a more
meaningful YoY comparison and analysis.
Dividends No dividend was declared as expected.
Key Results Highlights QoQ, despite improvement in the
revenue (+7.7%), the 3Q13 core net profit fell 20.2% due to: 1) higher interest
costs; 2) lower margin works in the OCSS division; and 3) weaker DGMS earnings
on account of two geotechnical vessels incurring dry-docking and repair
maintenance costs.
YoY, the 3Q13 net profit was down 15.5% due mainly to: 1) a
higher interest cost; 2) lower margins at the EJV division due to more manpower
hiring; and 3) the absence of the two vessels (mentioned above) in generating
revenue in the current quarter.
Outlook SKPETRO’s
strong presence and scale in the domestic EPCIC market both domestically and
globally makes it a prime candidate for securing further contract wins. The
impending Seadrill asset injection is expected to increase the group’s net
profits further.
Change to Forecasts The 9M13 net profit was within
expectations, but we have fine-tuned our revenue, costs (interest, tax and MI) and
the respective sectors’ margin assumptions (overall EBIT margin reduced to
18.1-18.4% from 19.1% p.a.) to derive our new YTD earnings.
In total, our revisions above resulted in a marginal change
to our FY13 net profit (+0.1% from RM495.6m) while our FY14 net profit estimate
remained unchanged.
We highlight that its impending Seadrill asset injection will
likely lead to further changes in our assumptions and net profit estimates when
the deal is completed (targeted for 1QCY13)
Rating MAINTAIN OUTPERFORM
Valuation Maintaining our fair value of RM3.42
based on an implied targeted CY13 PER of 23.8x. Recall that we have tactically raised
our target price earlier to accommodate for the potential earnings accretion
from the new rigs of SKPETRO post the acquisition exercise with Seadrill. The premium
valuation accorded to the stock (versus 15x for the sector average and 18x for
MMHE) is due to its significant domestic market dominance and service scale range.
Risks 1) High capex plans for company could
strain its growth prospect and 2) delay in contract executions could result in
lower-than-expected earnings.
Source: Kenanga
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