This article first appeared in The Edge Financial Daily on May 2, 2018
Petra Energy Bhd
(April 30, 60 sen)
Maintain buy with a target price (TP) of 83 sen: We reaffirm our positive view on Petra Energy Bhd after our recent corporate meeting. We believe prospects should turn around, underpinned by a marked improvement in earnings visibility as current high oil prices should boost Kapal, Banam, Meranti risk-sharing contract’s (KBMRSC) profitability. Also, we expect the increased work orders from the recently awarded maintenance, construction and modification (MCM) contract and spillover from 2017 projects to provide further potential upside to earnings. Petra Energy is notably one of the key beneficiaries of higher oil prices under our coverage.
Petra Energy is one of the best proxies to ride the oil-price recovery due to its 30% stake in KBMRSC. We believe the current high-oil-price environment provides a good opportunity for it to undertake production enhancements on the field. On our estimates, field production could be ramped up 50% from the current 4,500 barrels per day by December 2018.
To recap, Petra Energy has an outstanding order book of RM1.6 billion, comprising RM1 billion from the MCM contract by Petrolian Nasional Bhd (Petronas) and the remaining RM600 million from the Pan Malaysia hook-up contract. We understand that the hook-up contract, which expires in 2018, will be up for renewal. Management is currently bidding for a Pan Malaysia five-year extension.
Demand for decommissioning and abandonment works is expected to be on the rise moving forward due to ageing platforms, facilities, and pipelines. According to our channel checks, approximately 40% of Petronas’ platforms and pipelines are more than 30 years old. We believe this could be a market that maintenance players like Petra Energy can tap into for further growth opportunities.
Overall, management echoes our view on an improved outlook for the maintenance players. In addition, Petra Energy is also well positioned to benefit from the recovery in oil prices, as mentioned above. With that, we maintain our “buy” call with an unchanged 12-month sum-of-the-parts TP of 83 sen. — Affin Hwang Capital Research, April 30