Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
Research House: RHB
SapuraCrest Petroleum Bhd
(June 2, RM1.95)
Reiterate outperform at RM1.96 with fair value of RM2.66: SapuraCrest announced that it had entered into joint venture (JV) with Al Rayan Investment (ARI) with an initial investment of RM308,700. We understand that SapuraCrest will have a 49% stake in this JV while ARI will own the remaining 51%.
Note that ARI was incorporated in Qatar in 2007 as a limited liability company and is a wholly owned subsidiary of Masraf Al-Rayan (Qatar's fourth-biggest lender by market cap). The businesses of ARI include real estate investment, private equity and investments and financial advisory services.
We are positive on the latest development as the JV would enable SapuraCrest to tap into the growing IPF (installation of pipelines and facilities) demand stemming from the resilient E&P (exploration and production) spending in the Middle East. Recall that SapuraCrest had secured few sizeable contracts from India (RM185 million Mumbai High South and RM255 million North Field projects) via the 40:60 JV with Larsen & Toubro. However, unlike the Acergy JV and L&T JV, this JV will not own an IPF vessel.
Risks to our view are: (1) rising costs of materials, labour and assets; 2) potential margin squeeze for the IPF division due to price competition for new contracts; and (3) potentially, more open competition from larger global players.
We maintain our forecasts, as it is premature to include earnings contribution from the JV.
We reiterate that medium-term earnings visibility remains bright on the back of: (1) RM9.1 billion effective order book and stronger order book replenishment from overseas (India and Australia) for its IPF division; (2) better cost control given ownership of its own IPF vessels as well as cost pass-through contract; and (3) stronger growth in rates for its drilling division.
Potentially, as we see more contracts secured, there may be upside to our fair value of RM2.66 per share, which is based on 16 times FY11 EPS (earnings per share). Hence, given still potential upside of 36% to our fair value, we reiterate our outperform call on the stock. ' RHB Research Institute, June 2
This article appeared in The Edge Financial Daily, June 3, 2010.
Company Name: SAPURACREST PETROLEUM BHD
Research House: RHB
SapuraCrest Petroleum Bhd
(June 2, RM1.95)
Reiterate outperform at RM1.96 with fair value of RM2.66: SapuraCrest announced that it had entered into joint venture (JV) with Al Rayan Investment (ARI) with an initial investment of RM308,700. We understand that SapuraCrest will have a 49% stake in this JV while ARI will own the remaining 51%.
Note that ARI was incorporated in Qatar in 2007 as a limited liability company and is a wholly owned subsidiary of Masraf Al-Rayan (Qatar's fourth-biggest lender by market cap). The businesses of ARI include real estate investment, private equity and investments and financial advisory services.
We are positive on the latest development as the JV would enable SapuraCrest to tap into the growing IPF (installation of pipelines and facilities) demand stemming from the resilient E&P (exploration and production) spending in the Middle East. Recall that SapuraCrest had secured few sizeable contracts from India (RM185 million Mumbai High South and RM255 million North Field projects) via the 40:60 JV with Larsen & Toubro. However, unlike the Acergy JV and L&T JV, this JV will not own an IPF vessel.
Risks to our view are: (1) rising costs of materials, labour and assets; 2) potential margin squeeze for the IPF division due to price competition for new contracts; and (3) potentially, more open competition from larger global players.
We maintain our forecasts, as it is premature to include earnings contribution from the JV.
We reiterate that medium-term earnings visibility remains bright on the back of: (1) RM9.1 billion effective order book and stronger order book replenishment from overseas (India and Australia) for its IPF division; (2) better cost control given ownership of its own IPF vessels as well as cost pass-through contract; and (3) stronger growth in rates for its drilling division.
Potentially, as we see more contracts secured, there may be upside to our fair value of RM2.66 per share, which is based on 16 times FY11 EPS (earnings per share). Hence, given still potential upside of 36% to our fair value, we reiterate our outperform call on the stock. ' RHB Research Institute, June 2
This article appeared in The Edge Financial Daily, June 3, 2010.
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