Hot Stock SapuraKencana falls 1.41% after analyst downgrade

by **Cals** Tue 08 Dec 2015, 22:52

Hot Stock

SapuraKencana falls 1.41% after analyst downgrade

By Gho Chee Yuan / theedgemarkets.com | December 8, 2015 : 10:38 AM MYT [You must be registered and logged in to see this image.]

KUALA LUMPUR (Dec 8): SapuraKencana Petroleum Bhd ([You must be registered and logged in to see this image.] Valuation: 0.80, Fundamental: 0.65)'s shares fell as much as 1.41% in the early trades after a research house said the stock’s valuations have caught up with its fundamentals.

TA Securities Research has downgraded the stock to Sell from Buy with unchanged target price (TP) of RM2.29 based on 11 times calendar year 2016 (CY16) price to earnings ratio (P/E).

"SapuraKencana's share price has rallied 46% since end of August 2015, and believed the stock’s valuations have caught up with its fundamentals," TA Research said in a note to client today.

"Earnings risk loom ahead as weak oil price curtails orderbook replenishment and exacerbates SKEI’s (SapuraKencana Energy Inc) losses," it added.

TA Research prefers oil and gas players that have divert to midstream and downstream such as MISC Bhd ([You must be registered and logged in to see this image.] Valuation: 1.40, Fundamental: 2.30) and Petronas Chemicals Group Bhd (PetChem) ( Valuation: 0.70, Fundamental: 2.70) whom are beneficiaries of oil price weakness.

As at 10.11am, SapuraKencana was traded at its lowest point of the day at RM2.10, with 911,800 shares changed hands from the range of RM2.10 to RM2.12. The current price gives it a market capitalisation of RM12.58 billion.

Recall that, the oilfield services provider announced yesterday that it has bagged three new contracts and extensions worth a combined US$72 million (RM300 million).

The three projects include the engineering, procurement, construction and commissioning services contract in Sarawak, a subcontract for installation works for the additional development of the Vasai East project offshore Mumbai, India and the drilling contract at Côte d'Ivoire by SKD Alliance Semi-Tender.

Commenting on this, TA Research said these contracts fall within its expectations of Engineering and Construction (E&C) contract wins totalling RM3 billion in financial year 2016 (FY16).

"Year-to-date, the group has announced order wins amounting to US$555 million (RM2.4 billion). Except for one local E&C contract, the bulk of contract wins are for international E&C projects," the firm said.

It noted the contract for Roc Oil Sarawak marks SapuraKencana's maiden local contract win for 2015.

"We believe SapuraKencana’s affinity for international contracts is primarily due to more attractive margins and larger scale projects overseas," it added.

With the new winning, TA Research estimates that SapuraKencana's orderbook (excluding Joint controlled entities, JCEs) to be approximately RM9.6 billion, which translates to 1.7 years of revenue visibility.

(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)