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
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