SapuraKencana Petroleum : New Petronas contracts but watch out for 4Q results HOLD

SECTOR FOCUS OF THE DAY

SapuraKencana Petroleum : New Petronas contracts but watch out for 4Q results                                            HOLD

We downgrade our recommendation on SapuraKencana Petroleum (which is being renamed to Sapura Energy) to HOLD from BUY as the share price has risen near our unchanged book value-based fair value of RM2.07/share, currently based on a 20% discount on the group’s intangible assets. Our forecasts are unchanged as the new contracts have already been incorporated in our FY17F new order assumptions of RM7bil. The group has secured 5 fresh Petronas contracts worth RM434mil (US$97mil). These awards further underpin the group’s earnings prospects as we estimate that these contracts will add 7% to the group’s new wins to date in FY17F to RM5.9bil – 84% of our FY17F order book addition of RM7bil. This has also raised the group’s order book by 2% to RM18.9bil currently. The group is hopeful for further wins with tender prospects worth over US$7bil (RM31bil).

Given the impairments provided by Bumi Armada and UMW Oil & Gas together with the lower asset utilisation during the year-end monsoon season, we foresee a 4QFY17 loss from SapuraKencana, expected to be announced later this month. Recall that the group registered a 9MFY17 net profit of RM381m vs. consensus’ FY17 earnings of RM250mil and management’s guidance of RM100mil-RM200mil, which implies a 4QFY17 loss of RM131mil. The stock currently trades at a fair 8% discount to its latest quarterly reported book given the likelihood of 4QFY17 losses and asset impairments.

Others :

Tan Chong Motor : Bringing a knife to a gunfight                HOLD

Oil & Gas Sector : Mixed report card amid impairments and lower orders              NEUTRAL

STOCKS ON THE  RADAR

Inari Amerton : A missed opportunity from China             HOLD

QUICK TAKE

CIMB Group,Petronas Chemicals,V.S Industry,Kimlun Corporation

ECONOMIC HIGHLIGHTS

Malaysia : Probability for a rate hike is at 30%

Euro : ECB unlikely to taper QE for now

NEWS HIGHLIGHTS

My Eg Services : Confirms five-year concession with Government

SapuraKencana Petroleum : Bags RM433mil worth of offshore jobs

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