THE BUZZ
Yesterday, SapuraKencana Petroleum (SKP) announced that TLO,
its 100%-subsidiary, has received confirmation from Petronas, which has exercised its option to extend its contract for integrated transportation
and installation of offshore facilities for 1 year to 2013, effective from the
expiry of the current contract’s primary terms. This extension is valued
at approximately RM1.3bn. SapuraCrest
Petroleum - before its
merger with Kencana Petroleum -
had on 24 Dec 2009 received confirmation that TLO has been awarded a joint
contract by 11 of Petronas’ production sharing contractors (PSC) for the provision
of works and services for the transportation and installation of offshore
O&G facilities and structures for the PSCs between 2010-2012. Now, the
merged entity has received a contract extension for this job due to its good
delivery track record.
OUR TAKE
Positive news, but no
change to our FY13-14 forecasts. This is
because we had earlier factored in some orderbook replenishment for the merged
entity. SKP remains our top O&G pick, besides Dialog. We like the merged
entity as it is a full-fledged engineering, procurement,
construction, installation and commissioning (EPCIC) O&G provider. We
believe this business model will propel
the company and support it in targeting the bigger and
more lucrative O&G projects in and outside Malaysia. Being a one-stop
solution provider, the company can easily
take on the role of main contractor and hence reap higher project
margins since the contracts awarded to it are likely to come as an entire
package, rather than piece-meal.
Minimal impact from
European economic crisis. Of course, we do not think this statement would
be applicable to all locally listed O&G companies. However, we feel that this
should apply to SKP because about 50% of its focus is on Malaysia, where its
role is to help Petronas to partly realize its goal of
increasing Malaysia's O&G production
by being involved in marginal oilfields (e.g. the Berantai gas field) as
well as the entire range of EPCIC
services to ensure efficient O&G
extraction. Other than that, SKP also
has a good track record in
Australia, which is investing
heavily in developing its natural gas fields. Hence,
although the European crisis is far from being resolved and may adversely affect crude oil price and hence disrupt the
kick-start of new O&G projects, we think the impact on SKP would be
minimal based on its geographical focus. Also, the group has an enormous
orderbook of over RM13bn, which is enough to keep it busy and weather the European
crisis.
Maintain Buy. Our
fair value for SKP is RM2.88 based on PER of 20x FY13 EPS. Despite already
having a strong orderbook, we think there are still many opportunities for SKP
to beef up its orderbook further in the coming months,
especially from Petronas, which should
be ramping up its
local exploration and production capex to temporarily substitute for the
loss of production at its Sudan operation.
Source: OSK
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