Company Name: SAPURACREST PETROLEUM BHD
Research House: RHB
SapuraCrest Petroleum Bhd (SapCrest)
(March 25, RM2.49)
Maintain market perform at RM2.36, with fair value of RM2.66: SapCrest's core net profit for the financial year ended Jan 31, 2010 was largely in line, accounting for 103% and 95% of our full-year forecast and market consensus respectively.
Revenue for 4Q was down 53% quarter-on-quarter (q-o-q), mainly due to lower revenue from marine division (-47% q-o-q) on account of declining charter rates and lower utilisation rates as well as lower contribution from installation of pipeline and facilities (IPF) division (-71% q-o-q) due to seasonal factors.
Despite higher margins for IPF (+20.8 percentage points q-o-q), overall margins were dragged down by an operating loss of RM43.7 million for the marine division (versus 3Q operating loss of RM20.8 million) as well as declining drilling margin (-3.4 percentage points q-o-q) stemming from lower utilisation rates.
Stronger FY11, including the latest production sharing contractors' (PSCs) IPF contract worth RM1.5 billion, SapuraCrest's current effective order book now stands at RM7.4 billion. We note that the PSCs' IPF contract is for 2010 with additional contract sums to be awarded for 2011-12. Furthermore, we expect FY11-FY13 IPF operating margin to increase to 11.9%-12.2% respectively (versus 11.1% in FY10) given the higher contribution from higher-margin deepwater jobs as well as higher utilisation rates for its IPF vessels.
The company declared a final dividend of four sen per share. Coupled with its interim of three sen, total dividends for FY10 are seven sen implying a yield of 3%.
There are no changes to our forecasts for now. We have introduced our FY01/FY13 earnings projection.
As an investment case, we believe medium-term earnings visibility remains bright on the back of: RM7.4 billion order book and stronger order book replenishment from overseas (such as India and Australia) for its IPF division; better cost control given ownership of its own IPF vessels as well as cost pass-through contracts; and 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 earnings per share (EPS). Hence, we maintain our market perform call on the stock. - RHB Research Institute, March 25
This article appeared in The Edge Financial Daily, March 26, 2010.