Wednesday 19 December 2012

SapuraKencana Petroleum - Keeping its eyes on the big picture


SKPETRO is one of the largest non-Petronas linked players on Bursa Malaysia. Its significant scale, service range and established global track record make it one of the main beneficiaries of the domestic upstream opportunities, while its longstanding relationship with international heavyweights opens doors to global opportunities. We estimate a 2-year net profit CAGR of 28% on the back of: 1) its sizeable order book (~RM13.5b); and 2) maiden contributions from its Berantai marginal field. This has not included the potential earnings accretion (expected to lift CAGR to >50%) from the new tender-rig drilling assets that SKPETRO looks to inject in by early 2013. Given our confidence in the company, we have an OUTPERFORM call on the stock with a fair value of RM3.42. In contrast to our expectations, SKPETRO was not included as one of the FBMKLCI constituents recently. However, we remain confident that it will still be favourably looked upon in the sector and as such, remains as one of the Top 10 Picks for our 1QCY13 Investment Strategy.

Most diversified upstream oilfield services player. The company is one of the largest non-Petronas linked players on Bursa Malaysia. It boasts: 1) a significant and diversified asset base; 2) an established global execution track record; and 3) longstanding working relationships with international oilfield service heavyweights such as Subsea7 and Seadrill.  Recently, SKPETRO announced that it is looking to acquire most of Seadrill’s tender rig fleet and to manage three others, lifting its tender drilling fleet to a strong 24 vessels and effectively taking up a more significant share of the drilling market.

Order book “best-in-the-industry”. As at end-Oct. 2012, SKPETRO’s order stood at c.RM13.5b. In comparison to the other local heavyweights, MMHE has an order book of RM2.4b while Bumi Armada has an order book of RM7.0b. Even excluding the longer term Petrobras contract worth RM4.3b (which will only kickstart by end-14), SKPETRO possesses the largest domestic order backlog. For the YTD, it has locked in RM4.1b of wins, a significant sum when compared to its other large peers, MMHE (c.RM1.7b YTD wins) and Bumi Armada (c.RM1.2b YTD wins). 

Forward prospects seem similarly bright. We understand SKPETRO has a current tender book of around RM10.0b, of which 60% (RM6b) consists of domestic tenders. In our view, SKPETRO is a strong  contender within the domestic EPC market given its extensive fleet and experience. SKPETRO is likely to bid for another marginal field given its large-cap status and has already started commercial production for its Berantai field in Oct-12. In the global scene, SKPETRO’s reach now spans South-East Asia, North America, Brazil and Australia. 

2-year net profit CAGR of 28%. Our FY13-14 net profit estimates are driven by: 1) SKPETRO’s current sizeable order book; and 2) the maiden contribution from its first marginal field (Berantai). However, we estimate that the earnings from the new tender rigs (expected to be injected by early 2013) could lift FY14 earnings by at least another 50% to c.RM1.0b. We highlight that our current forecasts have not included the Petrobras earnings (order book of c.RM4.3b), which is slated to kick-start in FY16.

OUTPERFORM call maintained. We are confident that SKPETRO’s prospects remain bright, hence our Outperform call (TP: RM3.42) and its selection as one of the Top 10 Picks for our 1QCY13 Investment Strategy. Our premium valuations (CY13 targeted PER of 23.8x) versus the sector average of 15.0x and MMHE’s 18.0x is due to its significant domestic market dominance and service scale range; and takes into account the prospects we see from its Seadrill tender rigs acquisition.

Source: Kenanga

No comments:

Post a Comment