Hot Stock SapuraKencana jumps 5% on Newfield purchase

by **Cals** Wed 23 Oct 2013, 11:28

Hot Stock SapuraKencana jumps 5% on Newfield purchase

Business & Markets 2013

Written by Chong Jin Hun of theedgemalaysia.com

Wednesday, 23 October 2013 10:52

KUALA LUMPUR (Oct 23): SapuraKencana Petroleum Bhd rose as much as 5% on the oil and gas (O&G) support-services firm's proposed acquisition of Newfield International Holdings Inc's Malaysian upstream assets.

At 10.40am, SapuraKencana was traded at RM4.24 with some 15 million shares done. The bourse's fifth most-active stock was also the sixth-largest gainer.
SapuraKencana had earlier risen as much as 22 sen to RM4.30.

Yesterday, SapuraKencana said it is acquiring the entire stake in Newfield Malaysia Holdings from Newfield International for US$898 million (RM2.85 billion).

SapuraKencana president and group CEO Tan Sri Shahril Shamsuddin said the proposed acquisition will give the buyer access to Newfield's O&G fields across Malaysia.

“In essence we are acquiring a proven oil and gas operator with a balanced portfolio of producing and discovered fields and exploration assets in Peninsular and Sabah & Sarawak," Shahril said in a statement.

Analysts expect the deal to bode well for SapuraKencana's growth. Hong Leong Investment Bank Bhd analyst Jason Tan Yat Teng said the purchase will enable SapuraKencana to position itself as an upstream resource owner and operator.

In a note today, Tan said Hong Leong is however mindful of the acquisition's impact on SapuraKencana's balance sheet.

"We are positive on the deal and have not factored into our forecasts. Based on our assumption of i) 70% debt funding, ii) USDMYR of RM3.2, iii) finance cost of 4%, the acquisition will raise SapuraKencana’s net gearing from 1.1x to 1.3x.

"We expect it to be earnings accretive and increase our FY16 earnings forecast by 11% assuming RM170m bottomline contribution," Tan said. Hong Leong has maintained its earnings forecast for SapuraKencana as the research firm waits for more information from the buyer.

Hong Leong has also retained its "buy" call and target price (TP) of RM4.74 for SapuraKencana.

For comparison, TA Securities Holdings Bhd has maintained its "buy" recommendation with a TP of RM5.24 for SapuraKencana.

In a note today, TA said the purchase of Newfield's assets will help
SapuraKencana become become the first Malaysian O&G firm to have a production-sharing contract with Petroliam Nasional Bhd.

"(We) Maintain earnings estimates pending finalisation of the acquisition," TA said.