Strong order book for SapuraKencana

by **Cals** Tue 14 May 2013, 12:06

Strong order book for SapuraKencana
Business & Markets 2013
Written by MIDF Research
Tuesday, 14 May 2013 10:02

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SapuraKENCANA PETROLEUM BHD []
(May 13, RM3.68)
Maintain buy at RM3.54 with a target price of RM3.96: The contract from Petronas Carigali Sdn Bhd encompasses the provision of marine geo-hazards investigation services for its offshore oil and gas fields in Peninsular Malaysia. This contract is for a duration of three years from April 2013 to April 2016, with a one-year extension option.

We maintain our earnings estimates as we have factored in potential earnings accretion from this contract. Due to this project’s modest value, the potential earnings are not expected to be significant to the group’s total earnings.

SapuraKencana’s order book (according to its most recent media interview) stood at US$6 billion (RM18 billion). Approximately 46% of its order book consist of Malaysian jobs, 32% Brazilian and Gulf of Mexico jobs, 16% Australian jobs and 5% Southeast Asian jobs.

Around 64% of its order book will be recognised in 2013 financial year (FY13) and FY14 while the remainder will be recognised from FY15 onwards. The group has submitted RM13 billion worth of tenders and it is hoping to win roughly RM7 billion worth of new tenders.

We believe that SapuraKencana will be a frontrunner in all major segments of the oil and gas industry, namely shallow water, deepwater (Bokor, Samarang, Dulang, Baram Delta, Guntong, Cakerawala, MT JDA), floating solutions (Belud, Kamelia, Teratai, E6, Balai), enhanced oil recovery (Angsi, St Joseph, Baram), hook-up and commissioning (HUC), marginal fields and pipeline works.

We are bullish on SapuraKencana and maintain our “buy” recommendation on the stock at a target price of RM3.96 (which is under review for potential upgrade during upcoming rollover window), on the back of a forward price-earnings ratio of 20 times and 2014 earnings per share of 19.8 sen.

We like SapuraKencana for its integrated oil and gas business model, consistently strong order book replenishment (burn rate of three years) and its status as a strong beneficiary of Petroliam Nasional Bhd’s strong capital expenditure spending for the next few years. — MIDF Research, May 13

This article first appeared in The Edge Financial Daily, on May 14, 2013.[You must be registered and logged in to see this image.]