AmWatch - SapuraKencana Petroleum : Seadrill pares stake down to 8% BUY, 10 Apr 2014

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SapuraKencana Petroleum : Seadrill pares stake down to 8%       BUY

We maintain our BUY recommendation on SapuraKencana Petroleum Bhd (SapuraKencana), with an unchanged fair value of RM5.70/share, based on an FY15 PE of 22x, which is the 2007 peak achieved by Kencana Petroleum.

We maintain SapuraKencana’s FY15F-FY17F earnings, which will not be affected by changes in shareholder stakes.Seadrill has placed out 230mil SapuraKencana shares at RM4.30/share, valued at RM989mil. This will reduce Seadrill’s stake in SapuraKencana from 12% to 8%. Seadrill’s chairman and major shareholder John Fredriksen has said that his company, which entered into a lock-up agreement for its remaining stake in SapuraKencana, will remain as a long-term strategic investor in the group.

We believe that should Seadrill eventually disposes of its entire stake in SapuraKencana, it will be gradual given that Seadrill has a strong business relationship with the group via 50:50 joint ventures in 6 pipe-laying flexible support vessels, each potentially worth US$300mil. According to Fredriksen, Seadrill is currently exploring other business ventures with SapuraKencana.

Following this share sale, Seadrill will be the fourth largest shareholder in the group after Sapura Holdings (16.8%), EPF (11.7%) and Khasera Baru (10%). SapuraKencana’s president/chief executive officer, Tan Sri Shahril Shamsuddin is the major shareholder of Sapura Holdings while Datuk Mokhzani Mahathir controls Khasera Baru.

The changes in shareholder levels does not affect our  positive outlook on SapuraKencana’s prospects given the group’s US$898mil (RM2.8bil) acquisition of Newfield International’s oil & gas production blocks in Peninsula Malaysia, Sabah & Sarawak. As SapuraKencana is poised to become a truly formidable regional O&G upstream operator, its share price has outpaced the FBMKLCI by 39% over the past 12 months. But its aggressive acquisitive earnings acceleration (+107% in FY14 & +59% in FY15F) translates to a still attractive FY15F PE of 16x currently - a 45% discount to SapuraCrest Petroleum’s peak of 29x in 2007.

QUICK TAKES

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NEWS HIGHLIGHTS

Benalec Holdings : Shares sold at substantial discount

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Banking Sector : Islamic banking assets double to RM423bil at end-Feb accounting for 21% of banking asset

Automotive Sector : MAA says increase in car loan rates ‘not significant’ and car sales not affected

DISCLAIMER:

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