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.
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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