This article first appeared in The Edge Financial Daily on November 22, 2017

Petra Energy Bhd
(Nov 21, 80 sen)
Retain neutral recommendation with an unchanged target price (TP) of 95 sen: Petra Energy Bhd’s nine months of financial year 2017 (9MFY17) results saw a rise in revenue to RM341.8 million (+25.5% year-on-year [y-o-y), while core loss improved to RM17.9 million (+7.6% y-o-y). We are maintaining our “neutral” recommendation on Petra Energy with a TP of 95 sen pegged at a 10 times price-earnings multiple on our FY18 earnings per share of 9.5 sen.

We do believe the group is poised for better prospects ahead, in scopes of hook-up and commissioning (HUC) and engineering, procurement, construction and commissioning contracts, which has previously been delayed due to the lower oil price environment, and which should see restarts with Brent oil price levels expected to now average around the US$60 (RM248.40) per barrel level.

Revenue for the services division in the third quarter of FY17 (3QFY17) recorded RM136.8 million (+92.1% y-o-y), resulting from higher activities in HUC and the topside major maintenance contract with Petronas Carigali Sdn Bhd.

Albeit this, the division saw a loss of RM29.1 million in 3QFY17 from weaker margins, excluding the one-off effects of gains on disposal of property, plant and equipment of RM11.3 million, and provision for impairment on receivables of RM4.8 million for a piece of land sold in Shah Alam.

Revenue for the marine assets division grew to RM68.7 million (+79.4% y-o-y) in 3QFY17, from higher vessel utilisation in the quarter. This translated into a positive profit before tax (PBT) of RM400,000, versus a PBT loss of RM10.8 million in 3QFY16.

The production and development division recorded a higher PBT of RM14.2 million (+8.5% y-o-y) in 3QFY17, supported by lower finance costs from full settlement of borrowings for the Kapal, Banang and Meranti small field risk service contract (KBM Cluster RSC).

Petra Energy’s 30% stake in the KBM Cluster RSC, however, was lower at RM9.6 million in 3QFY17 (-34.7% quarter-on-quarter) following its routine maintenance in the quarter, but is expected to boost production flow from 4QFY17.

For the interim, the group is still expected to experience higher costs and narrowed margins from rebasing of industry costs and rates during the lower oil price period, thus resulting in our adjusted FY17F (forecast) earnings estimate by over 100%.

Our revenue has been increased by 21% to account for stronger-than-expected work orders for FY17F. Petra Energy’s current order book stands at RM1.5 billion to last up to 2022, with a tender book at RM1 billion. — PublicInvest Research, Nov 21