SapuraKencana Petroleum Bhd ( Valuation: 1.40, Fundamental: 0.65)
(Jan 15, RM1.68)
Revise to hold with a lower fair value (FV) of RM1.50: We revise our call on SapuraKencana Petroleum Bhd to “hold” from “buy”, with a lower FV of RM1.50 per share as our valuation methodology is revised to factor in a 65% premium to the group’s financial year ending Jan 31, 2016 forecast (FY16F) net tangible assets of 91 sen per share. Our earlier valuation of RM2.45 per share was based on an FY16F price-earnings ratio (PER) of 14 times.
We have lowered our crude oil assumption for FY17F from US$50 (RM221) per barrel to US$40 per barrel, which reduces our core earnings forecasts by 14%. We expect sentiments on the stock to remain bearish given that the crude oil price is currently around US$30 per barrel, which could lead to further asset impairments and losses from the group’s oil production division.
For the nine months of FY16, the group’s total asset impairments of RM857 million are based on valuation estimates assuming crude oil prices above US$55 per barrel.
Additionally, the breakeven level in the group’s oil production assets is US$55 per barrel, far above current prices.
Separately, SapuraKencana has been awarded contracts and charter extensions worth US$117 million. The contracts are for hook-up and commissioning works for KNPG-B Phase II, a Kinabalu non-associated gas development project involving the provision of supervision, manpower, equipment and marine spread to carry out the hook-up and commissioning of a compression system module and high-pressure high-temperature facilities on the KNPG-B central processing platform.
Awarded by THHE Fabricators Sdn Bhd, this job will commence in the first quarter of 2016 and will be completed over a period of eight months. Engineering, procurement and construction of the subsea isolation valve (SSIV) systems at Block PM302, North Malay Basin, involve the completion of the works for SSIV skids, the subsea umbilical and flying lead, hydraulic power unit, topside umbilical termination unit and umbilical termination assembly.
The project, awarded by Hess Exploration and Production Malaysia BV, has already commenced and is expected to be completed over 18 months by the first quarter of 2017. Charter for the semi tender assist drilling rig, SKD Esperanza, is from Sarawak Shell Bhd/Sabah Shell Petroleum Co Ltd. The 18-month contract comes with options to extend for up to 18 months.
Charter for tender assist drilling rig SKD T20, which is working off Côte d’Ivoire for CNR International (Côte d’Ivoire) SARL, has been extended to June 2016, with an option to drill another five wells by the fourth quarter of 2016.
The stock currently trades at a fair FY16F PER of 10 times.
The group’s RM21 billion current order book, which accounts for 2.2 times FY17F revenue, provides some earnings support over the next two to three years despite the current weak sector outlook. — AmInvestment Bank, Jan 15
SKPETRO (5218) - SapuraKencana’s current order book stands at RM21b
http://www.theedgemarkets.com/my/article/sapurakencana%E2%80%99s-current-order-book-stands-rm21b
SKPETRO, SKPETRO (5218), 5218, EN5218, KLSE:SKPETRO, Investing, AmResearch,
