AmWatch - SapuraKencana Petroleum : More game in sight after debt refinancing BUY, 25 Mar 2014

STOCK FOCUS OF THE DAY

SapuraKencana Petroleum : More game in sight after debt refinancing  BUY

We maintain our BUY recommendation on SapuraKencana Petroleum with an unchanged fair value of RM5.70/share, based on an FY15 PE of 22x – the 2007 peak achieved by Kencana Petroleum. We fine-tuned SapuraKencana’s FY15F-FY16F earnings as its FY14 core net profit of RM1,013mil was within our and consensus expectations. This excludes RM209mil forex gain on loans to subsidiaries/associates and one-off exceptional charges of RM135mil.

The group did not declare any dividend for FY14, likely due to its capex commitments from the recent acquisitions. But we maintain FY15F-FY16F DPS for now pending further management guidance. We introduce FY17F earnings with a 12% growth driven by the staggered commencement of the group’s six 50%-owned pipe-laying support vessels which will be employed by Petrobras.

SapuraKencana’s 4QFY14 pre-tax profit decreased by 26% QoQ to RM274mil, largely due to the seasonally weaker offshore construction division. The group also enjoyed a positive tax charge of RM63mil due to deferred tax write-back provisions.

On a YoY comparison, SapuraKencana’s FY14 earnings surged by 79% due to the Seadrill tender rig acquisition in April 2013 and the merger of SapuraCrest and Kencana Petroleum, which was completed in May 2012. The group’s order book was largely unchanged QoQ at RM25.4bil ( 2.3x of FY15F revenue) and remains the largest within the O&G sector.

As such, we remain positive on SapuraKencana’s prospects given the group’s game-changing US$898mil (RM2.8bil) acquisition of Newfield International’s oil & gas production blocks. The group remains on the prowl for fresh acquisitions after its recent RM16.5bil debt refinancing programme. The group’s aggressive acquisitive earnings acceleration (+45% in FY14 and +100% in FY15F) translates to a still attractive FY15F PE of 17x currently – a 41% discount to SapuraCrest Petroleum’s peak of 29x in 2007.

Others :

Malayan Banking : Four key takeaways  HOLD

QUICK TAKE

Easterb & Oriental  : Still in negotiation for the acquisition of Elmina West              BUY

NEWS HIGHLIGHTS

Gamuda : MMC-Gamuda denies bidding for tunnel construction

Oil and Gas Sector : Deals to be sealed at OTC Asia

Toll Concessionaire Sector : Halim makes new bid for PLUS, says will keep toll rates unchanged

REITs Sector : Pressure on retail outlets, incoming space may affect tenancy and rates

Plantation Sector : Moody’s expects plantation giants to maintain strong credit quality

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.