Friday 28 December 2012

SapuraKencana Petroleum - More is to Come


A  global  champion  in  the  making,  SapuraKencana  Petroleum  (SKPETRO)  remains one of our top picks in the oil & gas (O&G) sector. The stock’s key rerating catalyst lies in its acquisition of Seadrill’s tender rig business for USD2.9bn. In view of the impending acquisition and potential rerating if the group bags more jobs next year, we maintain our BUY call and RM3.00 FV. If our assumptions hold, our forecast for FY14 will be bumped up by some 22.6%, thereby boosting our FV to RM3.70.

Enlarged  entity  to  command  59%  share  of  global  rig  business.  SKPETRO announced  in  November  that  it  had  entered  into  a  non-binding  memorandum  of understanding with Seadrill for the proposed combination and integration of the tender rig businesses  of  both  companies.  The  tie-up  will  see  SKPETRO  taking  control  of  an enlarged rig business comprising 16 tender rigs in operation and five more units currently under construction (the group will own 21 rigs in total upon completion of the transaction). SKPETRO will also be given the right to manage three tender rigs that are not part of the proposed  transaction. We  are  positive  on  the  deal  as  SKPETRO  will  in  the  long  run  not only inherit an existing orderbook of USD1.6bn, but also be able to capitalize on Seadrill’s expertise as well as expand its deepwater customer base in East Asia.

Orderbook  rock  solid.  SKPETRO’s  strong  orderbook  of  RM13.5bn  as  at  end-October 2012,  beefed  up  by  with  steady  replenishment  in  all  its  business  segments,  will  provide the group with a healthy revenue stream. Most of the jobs secured at in Malaysia (49%), followed  by  Brazil  and  the  Gulf  of  Mexico  (34%),  Australia  (15%)  and  South-East  Asia (2%).  We  believe  that  the  group  would  be  able  to  further  expand  its  presence  in  the lucrative Brazil market by virtue of its upcoming partnership with Seadrill.

Maintain FV for now but more is to come. As the MOU with Seadrill is still non-binding at  this  juncture,  we  are  leaving  our  FY14  earnings  forecast  unchanged,  although  we expect the transaction to be completed by end-January 2013. If our assumptions hold, our earnings  forecast  for  FY14  will  be  enhanced  by  some  22.6%,  which  would  accordingly boost  our  FV  to  RM3.70.  The stock’s rerating catalysts are:  i)  securing  new  contracts  in Brazil  and  domestically,  ii)  the  potential  earnings  accretion  from  the  acquisition  of Seadrill’s rig business, and iii) new hook-up and commissioning (HUC) contracts secured from the Pan Malaysian cluster.
Source: OSK

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