Core results came in ahead of expectations, on better performances by its Brazil JV PLSV and E&C operations. Values have emerged following a 19% MoM fall in share price, factoring in most of the negatives. We also foresee SAKP successfully prospecting for new gas finds, a re-rating catalyst. We revise forecasts but our MYR2.00 SOP-based TP is intact.
3QFY1/16 results ahead of our expectation
3QFY1/16 core earnings of MYR272m (-50% QoQ; -20% YoY) took 9MFY16 core net profit to MYR1,067m (+4% YoY), at 108%/105% of ours/consensus full year forecasts. Despite a 50% QoQ fall in core earnings in 3QFY16, our expectation was of a steeper fall. We attribute the better-thanexpected 3QFY16 performance to: (i) higher pretax profit from its E&C operations (+7% QoQ), (ii) lower pretax loss at its energy division and (iii) higher associates’ profits. The drilling division reported a 77% QoQ fall in pretax profit, expected, due to lower utilisation and DCRs.
Revisions in earnings forecasts
We raised FY1/16 core earnings by 13% to account for higher contribution from its E&C division and lower losses at its E&P operations. We expect a weaker 4QFY16. For FY1/17, we have moderately lowered our net profit forecast by 5% mainly to account for: (i) weaker drilling profits due to lower utilisation and DCRs and (ii) higher losses at its E&P division. 5 rigs are up for renewals and we foresee widening gaps in utilisation due to off-hiring of rigs. We now forecast crude oil price to be at average USD45/bbl in FY16-17 vs. USD55/bbl, which will impact its Newfield operations. Our FY1/18 net profit forecast is unchanged.
Undemanding valuation; new catalysts
The recent 19% MoM fall in share price has rendered SAKP attractive. Much of the negatives have been priced in. New discoveries of gas reserves from ongoing drilling activities are a catalyst, which would further raise the NPV of its energy operations.
Source: Maybank Research - 23 Dec 2015
SKPETRO (5218) - SapuraKencana Petroleum - 9MFY1/16 beats estimates
