SKPETRO (5218) : SapuraKencana Petroleum - Shine bright like a Diamante
Target RM6.84 (Stock Rating: ADD)
We have learned from management that it is business as usual in post-election Brazil and rig utilisation has improved. Sapura Diamante has been dispatched to work for Petrobras in Brazilian waters. Meanwhile, management has secured contracts for the four rigs that were unemployed in 2Q. We roll over valuations and our target price falls as we now value the stock at 21.2x CY16 P/E (formerly 23.4x CY15 P/E), a 30% premium over our target market P/E of 16.3x. We cut our premium from 40% to 30% to reflect the current weak oil price sentiment. We maintain our Add rating, with strong order book momentum and a successful E&P venture as potential re-rating catalysts. SapuraKencana remains our top pick among the O&G big caps.
What Happened
We touched base with SapuraKencana's management following the recent election in Brazil where President Dilma Rousseff was re-elected for a second four-year term. Following the election, SapuraKencana's operations have continued their steady progress, with pipelay support vessels (PLSV) Sapura Diamante working for Petrobras on a long-term charter and Sapura Topazio joining the fleet recently. Management also confirmed that it has secured jobs for the four rigs that were idle in 2QFY1/15 - T9, T10, T20 and Teknik Berkat.
What We Think
In Brazil, SapuraKencana appears on track to deliver by 1HFY1/17 all six PLSVs that have been earmarked for Petrobras. Brazil is leading the company's entrance into South America and is set to start contributing to SapuraKencana's net profit in 2HFY1/15. In the drilling business, the deployment of T9, T10, T20 and Teknik Berkat means that SapuraKencana's rig utilisation rate will reach 100% compared with 81% in 2QFY1/15. Despite the maiden profits in Brazil and the improvement in the drilling business, we reiterate our view that 2HFY1/15 is likely to be soft compared with the robust 1H due to the Southeast Asian monsoon season in 4Q when the offshore construction and subsea services (OCSS) business typically slows down. See overleaf for more comments.
What You Should Do
We advise investors to accumulate the stock following the share price fall as SapuraKencana offers solid order book and earnings visibility, supported by its exploration and production (E&P) venture and two long-term contracts in Brazil as well as various multiple-year OCSS and drilling contracts.
Source: CIMB Daybreak - 03 November 2014
Target RM6.84 (Stock Rating: ADD)
We have learned from management that it is business as usual in post-election Brazil and rig utilisation has improved. Sapura Diamante has been dispatched to work for Petrobras in Brazilian waters. Meanwhile, management has secured contracts for the four rigs that were unemployed in 2Q. We roll over valuations and our target price falls as we now value the stock at 21.2x CY16 P/E (formerly 23.4x CY15 P/E), a 30% premium over our target market P/E of 16.3x. We cut our premium from 40% to 30% to reflect the current weak oil price sentiment. We maintain our Add rating, with strong order book momentum and a successful E&P venture as potential re-rating catalysts. SapuraKencana remains our top pick among the O&G big caps.
What Happened
We touched base with SapuraKencana's management following the recent election in Brazil where President Dilma Rousseff was re-elected for a second four-year term. Following the election, SapuraKencana's operations have continued their steady progress, with pipelay support vessels (PLSV) Sapura Diamante working for Petrobras on a long-term charter and Sapura Topazio joining the fleet recently. Management also confirmed that it has secured jobs for the four rigs that were idle in 2QFY1/15 - T9, T10, T20 and Teknik Berkat.
What We Think
In Brazil, SapuraKencana appears on track to deliver by 1HFY1/17 all six PLSVs that have been earmarked for Petrobras. Brazil is leading the company's entrance into South America and is set to start contributing to SapuraKencana's net profit in 2HFY1/15. In the drilling business, the deployment of T9, T10, T20 and Teknik Berkat means that SapuraKencana's rig utilisation rate will reach 100% compared with 81% in 2QFY1/15. Despite the maiden profits in Brazil and the improvement in the drilling business, we reiterate our view that 2HFY1/15 is likely to be soft compared with the robust 1H due to the Southeast Asian monsoon season in 4Q when the offshore construction and subsea services (OCSS) business typically slows down. See overleaf for more comments.
What You Should Do
We advise investors to accumulate the stock following the share price fall as SapuraKencana offers solid order book and earnings visibility, supported by its exploration and production (E&P) venture and two long-term contracts in Brazil as well as various multiple-year OCSS and drilling contracts.
Source: CIMB Daybreak - 03 November 2014
