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SapuraKencana Petroleum Bhd
(April 20, RM2.69)
Maintain add with a target price of RM3.14:
SapuraKencana Petroleum’s pipe-laying support vessel (PLSV) Onix is ready to be dispatched to work for Petróleo Brasileiro SA (Petrobras) in Brazilian waters in about a month’s time, we learned from a meeting with the company yesterday. Like the earlier two PLSVs, Diamante and Topazio, Onix will be an early delivery.

We expect a steady rise in net profits from the operations in Brazil as more PLSVs are deployed. We continue to value the stock at 15 times calendar year 2016 price-earnings ratio (PER), at parity with our target market PER.

SapuraKencana remains an “add”, with syariah-compliant status confirmation and strong order book momentum as potential rerating catalysts.

Its unit in Brazil, Sapura Navegacao Maritima SA, is set to deploy Onix in about a month’s time, earlier than the original contract date. Diamante and Topazio were also delivered earlier than scheduled.

Diamante and Topazio, which commenced operations in June and September 2014 respectively, have been enjoying an average utilisation rate of 99%. The monthly payments from Petrobras have been on time.

To recap, Sapura Navegacao, a 50:50 joint venture between SapuraKencana and Seadrill Ltd, has two contracts with Petrobras. In November 2011, Sapura Navegacao secured a 5+5 US$1.4 billion (RM5.1 billion) contract to charter and operate three PLSVs, which includes Diamante and Topazio.

The second contract, which was awarded in June 2013, is worth US$2.7 billion. The 8+8 contract calls for the services of three additional PLSVs, which include Onix.

It is encouraging that Sapura Navegacao’s operations are on track. We expect net profit contributions from SapuraKencana’s 50% share in Sapura Navegacao to rise progressively from RM17 million in financial year ended Jan 31, 2015 (FY15) to be around RM50 million in FY16 and RM150 million in FY17 as more PLSVs are rolled out. Construction of the fourth PLSV, Esmerelda, is 80% complete.

We think you should accumulate SapuraKencana shares. A robust order backlog of RM25.7 billion and good leverage in the international market give the company an edge over its peers.

The stock’s expected return to the Securities Commission Malaysia’s syariah list next month is an added plus. — CIMB Research, April 20

SapuraKencana

This article first appeared in The Edge Financial Daily, on April 21, 2015.

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