1. Improved fundamentals as Brent crude oil price has surged 57%. From its recent low of USD30/barrel, the latest price is now USD47/barrel. While the USD17/barrel looks small in number, in percentage it is huge 57%. I maintain my bullish view on Brent crude oil price and expect it to exceed USD50/barrel some where in the 2nd half of the year. Reason is because Saudi Arabia has more or less achieved its objective to kill off the competitors from US Shale player. Some inefficient producers (those with cost of production above USD60 per barrel) has also died off. Somewhere between 50 to 60 per Barrel in 2H of the year should be achievable in my view.
2. Share price has declined by 20% to around RM1.60. I start to have position in SKPETRO when it was RM2.00 and I still keep it. The unexpected event is Seadrill sold off its 8.2% stake in SKPETRO at book building price of RM1.58. It was an urgent sale and Seadrill balance sheet is in deep shit. So the share price dropped close to RM1.58. But such low share price should not prevail for long.
3. Huge provisioning quarter is over and is unlikely to repeat. There is a lagged impact from crude oil price increase before the better earnings can be seen for SKPETRO result. Yes the 4QFY16 provisioning of RM1.28b is huge but that one is made when Brent crude oil drop from 50 all the way to 30 as of end Jan. Reason for the provisioning is because SKPETRO assets have to be marked to current market prices, which is dropping in 4QFY16 by 40% within a quarter to USD30/barrel. This explains the huge impairment charges. It is important to know that impairment are non-cash items and reversible once the market improved. In the absence of another 40% drop of Brent crude oil from USD30/barrel, SKPETRO should not repeat another RM1.28b provisioning again. In fact, some writeback is possible since Brent crude oil price has now recovered.
4. Oil price cannot (and will not) stay low forever in the long run. Demand on oil can only goes up. Supply is limited. I don't know the exact amount but I know we only have x amount barrel of oil. Eventually, after all the short term oversupply, oil price should increase again.
5. Once in 5-year opportunity to buy at around RM1.60. The share price of RM1.60 is at 5-year low. Yes the outlook for Oil and Gas is challenging but the share price has tumbled 68% from its high of RM5.00. Having said that, having exposure in SKPETRO is only for steady heart people. I have to repeat again on the 3 years holding period as short term crude oil price will swing the share price. Yes, I make 20% paper loss now but I will hold it because of the 5 reasons mentioned above. And I am adding my exposure from 5% to 10% to capture the better opportunity now.
SKPETRO (5218) - (fayeTan) - 5 reasons why NOW is the best time to BUY SKPETRO
http://klse.i3investor.com/blogs/genzinvestor/96371.jsp
