TA SecuritiesA Member of the TA Group
INITIATE COVERAGE
Friday, June 22, 2012
FBM KLCI: 1,601.43
Sector: Oil & Gas
MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048
Page 1 of 12
SapuraKencana Petroleum Bhd
TP: RM2.85 (+27%) Emerging Global O&G Juggernaut Last Traded: RM2.25
THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* Buy
TA Research Coverage
+603-2072-1277 ext: 1265
www.taonline.com.my
We initiate coverage on SapuraKencana Petroleum Bhd (SAKP) with a
Buy recommendation and target price of RM2.85, which is based on
target CY13 PER multiple of 20x. We are optimistic of SAKP’s prospects
due to:- (1) a strong contender for global contracts due to its extensive
and expanding asset base, solid track record, and integrated service
solutions; (2) ability to capitalize on the capex upcycle in Malaysia and
Brazil; (3) high earnings visibility from RM14.4bn outstanding
orderbook and RM12.5bn tenderbook; (4) potential for earnings upside
arising from better than expected margin derived from merger
synergies; and (5) healthy balance sheet that enables it to further expand
asset base.
One-stop service provider. SAKP is the result of a merger between leading
Malaysian offshore service providers, SapuraCrest Petroleum (SCRES) and
Kencana Petroleum (KEPB). The combined asset base and expertise of both
entities enables SAKP to be an integrated service provider covering 90% of the
O&G value chain with full-fledged Engineering, Procurement, Construction,
Installation and Commissioning (EPCIC) capabilities. Hence, SAKP is able to
undertake larger and more complex projects. In addition, the group’s enlarged
balance sheet will enables it to acquire more assets to service its contracts.
SAKP’s Installation of Pipelines & Facilities (IPF) fleet of 4 Derrick Lay Vessels
(DLV) and 1 Pipe Laying Service Vessel (PLSV) will double in size by 2014
upon delivery of 5 newbuilds comprising 2 units of DLVs and 3 units of PLSVs.
Capex upcycle in key operating markets. Under Malaysia’s Economic
Transformation Program (ETP), Petronas has committed to a 5-year
USD100bn capex program to boost domestic O&G production with emphasis
on greenfield deepwater developments and brownfield shallow water life-
extension projects. Currently, there are 10 shallow-water marginal fields ready
for development whereas 6 deepwater fields have been identified for future
development. We expect SAKP to be a major beneficiary of Petronas’ capex
initiatives given its track record in executing ETP projects awarded earlier. In
total, SAKP has secured ETP contracts totaling RM3.36bn including the
Berantai marginal field and projects in Gumusut-Kakap and Kikeh deepwater
fields.
In Brazil, Petrobras’ 2011-15 Business Plan highlighted initiatives to invest
USD225bn in the O&G industry whereby 57% (USD128mn) will be allocated to
exploration and production (E&P) activities. In addition, the national oil
company will implement 19 large projects and commence drilling in more than
1,000 offshore wells. SAKP is a strong contender for Brazillian contracts given
its formidable partnership with Seadrill that successfully clinched a USD1.4bn
5-year contract from Petrobras to charter 3 PLSVs back in November 2011.
Bloomberg Code SAKP MK
Stock Code 5218
Listing Main Board
Share Cap (mn) 5,004
Market Cap (RMmn) 11,110
Par Value (RM) 1.00
52-wk Hi/Lo (RM) 2.31/1.91
12-mth Avg Daily Vol ('000 shrs) n.a.
Estimated Free Float (%) 45%
Beta n.a.
Major Shareholders (%) STSB - 19%
Khasera - 15.9%
EPF - 12.5%
Seadrill - 6.4%
Forecast
FY12 FY13
Core Net Profit (RM mn) 651.9 718.5
Consensus 622.75 755.083
TA/Consensus (%) 105% 95%
Previous Rating
Financial Indicators
FY13 FY14
Net Debt/Equity (%) 45.3 46.4
ROA (%) 5.0 5.1
ROE (%) 10.4 10.1
NTA/Share (RM) 0.27 0.44
P/NTA (x) 8.4 5.1
Share Performance
Price Change (%) SAKP FBMKLCI
1 mth 13.3 3.9
3 mth n.a 1.1
6 mth n.a 7.7
12 mth n.a 1.8
Share Information
Buy (New)
(12-Mth) Share Price relative to the FBM KLCI
Source: Bloomberg
TA SecuritiesA Member of the TA Group 22-Jun-12
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Massive RM14.4bn orderbook and RM12.5bn tenderbook. SAKP’s current
order backlog is equivalent to more than 3 years of FY12 revenue. SAKP has a
growing international presence whereby markets such as Brazil and Australia
comprise 33% and 19% of its current order backlog. SAKP’s tenderbook is
divided equally between domestic and foreign projects with a 30-45% bid
success rate. Year-to-date, the group has managed to secure RM1.1bn worth of
contracts. SAKP’s existing partnerships with world-class oilfield service
providers (Seadrill, Subsea 7, Petrofac, Saipem, Larsen & Toubro, Bechtel, and
Leighton) enables SAKP to bid for international contracts.
Merger synergies translate into higher margin. Post-merger, SAKP is able
to bid for full-service turnkey contracts that command higher margin. There is
potential upside to streets’ earnings estimates for the group due to the effect of
enhanced margin compounded with significant cost savings from merger
synergies. SAKP is able to consolidate its purchases of materials within the
group and thus optimize procurement costs. In addition, SAKP is able to
minimize earnings leakages to subcontractors and internalise profit margin.
Healthy balance sheet. SAKP has current cash balance of RM2.1bn and 0.4x
net gearing. SAKP has additional debt headroom of RM2.0bn assuming the
group leverages up to a comfortable net gearing level of 0.8x to fast track its
asset expansion to fuel growth.
Risks. (1) Fluctuating crude oil prices will limit or delay capex spending by
oilfield operators; (2) Execution risk due to unfamiliar new business ventures
in foreign markets; (3) Impairment of RM4.91bn of goodwill (equivalent to
96% of current shareholders’ funds) will negatively impact SAKP’s bottomline;
(4) Slower than expected orderbook replenishment due to lumpy award of
contracts will result in downwards revision of earnings forecasts.; and (5) Late
delivery of vessels will impact cashflows and delay the execution of contracts.
Valuation
Our target price of RM2.85 is based on 20x blended CY13 EPS, which is
marginally above the average 18.3x CY13 valuation of SAKP’s local peers and
implies potential upside of 27%.
Background
SAKP is an integrated upstream Oil & Gas service provider with operations in
Malaysia and regionally. The Group’s business is segmented into 5 core areas
as per Figure 1:-
Figure 1: Core Business
Source: Company
TA SecuritiesA Member of the TA Group 22-Jun-12
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SAKP offers integrated solutions covering 90% of an oilfield’s development
stage. Hence, being a one-stop service provider, SAKP has competitive
advantage in securing larger and more complex turnkey EPCIC projects. SAKP
has a workforce of 9,000 employees servicing projects in more than 22
countries, with its core markets being Malaysia, Brazil and Australia. SAKP
operates within the league of Top 30 global offshore oil field service providers
by revenue which includes industry heavyweights such as Schlumberger,
Halliburton and Saipem.
Figure 2: Typical Lifecycle of O&G Fields and SAKP’s Services
Source: Company
Merger Rationale
SAKP was formed in May 2012 after the merger between two leading Malaysian
offshore service providers, SapuraCrest Petroleum (SCRES) and Kencana
Petroleum (KEPB). The existing businesses of the separate entities were
complementary to each other, except for some overlap in Drilling and Hook-up
and Commissioning (HUC) services. SCRES’ core strength was in Offshore
Installation whilst KEPB in Fabrication and EPCC (Engineering, Procurement,
Construction and Commissioning). Hence, the combined expertise and asset
base of both entities enables SAKP to execute full-fledged Engineering,
Procurement, Construction, Installation and Commissioning (EPCIC) services
which include detailed engineering, procurement of materials, construction of
structures, transportation to site, installation, and commissioning (preparatory
activities to commence operations) services for clients. Post-merger, SAKP will
be able to bid for full-service turnkey contracts for field development with
higher margins, whereas in the past, SCRES and KEPB both operated as sub-
contractors in smaller turnkey supply contracts. The combined asset base and
expertise of both entities enables SAKP to offer integrated services and the
ability to undertake larger projects. In addition, the group’s enlarged balance
sheet enables SAKP to acquire more assets to service its contracts.
Furthermore, SAKP is able to consolidate its purchases of materials within the
group and thus optimise procurement costs. On top of that, SAKP is able to
minimize earnings leakages to subcontractors and internalise profit margins.
TA SecuritiesA Member of the TA Group 22-Jun-12
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Management Team & Shareholding
SAKP has an ensemble management team led by Dato’ Seri Shahril Shmasuddin
as President & Group CEO and Dato’ Mokhzani Mahathir as Executive Vice-
Chairman. Dato’ Seri Shahril was Executive Vice-Chairman at SCRES whilst
Dato’ Mokhzani had previously headed KEPB as CEO. Private investment
vehicles of Dato’ Seri Shahril and Dato’ Mokhzani are the biggest shareholders
at SAKP with a 19% and 16% stake respectively. Norwegian offshore drilling
company, Seadrill, which is also SAKP’s JV partner in Drilling services and
Brazillian IPF projects, is a major shareholder in SAKP with a 6% stake.
Figure 3: Organization Chart
Source: Company
Asset Base
SAKP has a large existing asset base to service its various business divisions
comprising four Derrick Lay Vessels (DLV), one Pipe Laying Service Vessel
(PSLV), one Floating Production Storage & Offloading (FPSO) vessel, six Self
Erecting Tender Assisted (SETR) rigs, two fabrication yards, and 47 units of
various marine offshore support vessels (OSV).
TA SecuritiesA Member of the TA Group 22-Jun-12
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Figure 4: Asset Base (excluding Rigs) by Segment
Segment Asset Type
Built/
Upgraded Stake Partner
IPF Sapura 3000 PLSV 2008 50% Subsea 7
LTS 3000 DLV 2010 40% Larsen & Toubro
QP 2000 DLV 2009 26% Quippo & MDL
Java Constructor DLV 2009 100%
Clough Challenge DLV 1996 100%
Newbuild DLV Expected: 4Q13
Newbuild DLV Expected: 1Q14
Newbuild PLSV Expected: 2014 50% Seadrill
Newbuild PLSV Expected: 2014 50% Seadrill
Newbuild PLSV Expected: 2014 50% Seadrill
No. of Units
Development 1 FPSO Berantai Delivery: 2Q12 49% Petrofac
& Production
Marine 6 Diving/Support Vessels
Services 4 Anchor Handling Tugs (AHT)
4 Geotechnical/ Geophysical Vessels
6 Accomodation Workboats/ Barges
1 Semi-submersible Barge
24 Remote Operating Vehicles (ROV)
2 Mobile Offshore Production Unit (MOPU)
Capacity Location
EPC 64k MT p.a / 240 ac Fabrication Yard Lumut 100%
36k MT p.a / 74 ac Shipyard Labuan 50% Realmild
Source: Company, TA Research
Figure 5: Drilling Rig Assets & Contract Details
Rig
Built/
Upgraded
Water
Depth Client
Contract
Tenure
Contract
Extn
Option Stake Partner
T-3 2001 122 m Seadrill/PTT Feb 05-Jun 12 51% Seadrill
T-6 2000 122m
Carigali Hess &
Carigali- PTTEPI Dec 10 - Apr 13 2 x 3 mths 51% Seadrill
T-9 2003 2000m Petronas Carigali Apr 12 - Mar 13 12 mths 51% Seadrill
T-10 2007 2000m
Seadrill/Chevron
Thailand Jan 11 -Jan 13 - 51% Seadrill
Teknik Berkat 2005 152m - 51% Seadrill
KM-1 2010 245m Petronas Carigali Sept 10 - Aug 15 5 yrs 100% -
Newbuild SETR Expected Delivery: 2014
Newbuild SETR Expected Delivery: 2014 Source: Company, TA Research
SAKP’s Installation of Pipelines & Facilities (IPF) fleet of 4 DLVs and 1 PLSV will
double in size by 2014 upon delivery of 5 newbuilds comprising 2 units of DLVs
and 3 units of PLSVs. In anticipation of strong demand for specialized vessels
used for installation of pipelines & faciilities, SAKP placed orders for 2
newbuild DLVs from Cosco Nantong’s shipyard in China back in September
2011. The two DLVs will be built at a total cost of USD227mn for delivery in
4Q13 and 1Q14 respectively. In addition, SAKP is currently constructing two
newbuild SETR rigs at its fabrication yard in Lumut at a cost of US$145mn each
for delivery in 2014.
Orderbook
SAKP has current outstanding orderbook of RM14.3bn whereby a significant
portion (83%) comprises EPCIC contracts. A majority of SAKP’s contracts are
Malaysian-based (42%) but SAKP is growing its presence in international
markets such as Brazil and Australia which comprise 33% and 19% of its
current order backlog. SAKP has a RM12.5bn tenderbook divided equally
between domestic and foreign projects with a 30-45% bid success rate. Year-to-
date, the Group has managed to secure RM1.1bn worth of contracts and is
targeting a RM3bn HUC project on the domestic front.
TA SecuritiesA Member of the TA Group 22-Jun-12
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Figure 6: Current Outstanding Orderbook by Segment
9.1
2.8
1.30.9 0.1
14.35
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
IPF / HUC EPC Drilling Marine Svc O&M Total
RM
'bn
Source: Company, TA Research
Key contracts in SAKP’s current outstanding orderbook include:- (1) USD1.4bn
(RM4.34bn) 5-year contract from Petrobras to charter and operate 3 PLSVs
commencing in 2014; (2) Pan Malaysia T&I project with remaining unbilled
contract value of RM1.5bn; (3) Domestic Gas (Domgas) contract awarded by
Chevron Australia for Transportation & Installation (T&I) works on the Gorgon
Project with remaining value of RM736mn; (4) EPCC for Wheatstone LNG
project awarded in December 2011 from Bechtel with contract value of RM1bn;
and (5) RM460mn EPCC contract for SPSA Development Project awarded by
Murphy Sarawak Oil to commence in 1Q13.
Figure 7: Geographical Breakdown of Orderbook
Source: Company
SAKP’s partnerships and strategic alliances with world-class O&G service
providers enable SAKP to participate in the international bidding circuit for
contracts. SAKP has existing JVs with Seadrill, Subsea 7, Petrofac, Saipem,
Larsen & Toubro (India), Bechtel, and Leighton (Australia).
TA SecuritiesA Member of the TA Group 22-Jun-12
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In November 2011, a 50:50 joint venture (JV) between Seadrill and SAKP
successfully secured a 5-year contract to operate and charter-out three PLSVs
to Brazil’s state-owned oil company, Petrobras, commencing from 4Q15. This
project, valued at US$1.4bn, is SAKP’s single largest contract to-date. One of the
newbuild 300-tonne PLSVs for the project will be built in Brazil at a cost of
US$260mn (delivery: Dec 2014) whilst the remaining two units of 550 tonnes
each will be built by Dutch shipbuilder IHC Offshore for US$600mn per unit
(delivery: May-Aug 2014). Ownership of the newbuild PLSVs will be split
equally between SKSP and Seadrill. Currently, the SAKP-Seadrill JV is also
bidding for Petrobras’ second round of tenders for the charter and operations
of six units of 600-tonne PSLVs and is hopeful of clinching at least 3 units of
PSLVs.
In January 2011, SAKP’s 50:50 JV with Petrofac (listed in London Stock
Exchange) secured a Risk Sharing Contract (RSC) from Petronas to develop and
produce petroleum resources at Berantai field, located 150km offshore
Terengganu for a period of 8 years. Under the RSC, SAKP-Seadrill is also
responsible to provide total project funding of circa USD1.0bn including the
provision of a Floating, Production, Storage and Offloading (FPSO) vessel
estimated to cost USD200mn. The JV will construct a well-head platform of 18
wells and a pipeline linking it to an existing platform. A second well-head
platform will be installed in the second phase. The Berantai field is on-track for
production of first-gas in Aug 2012. The Group will also participate for the
upcoming marginal field projects alongside its existing partner, Petrofac.
Outlook
Due to a maturing offshore industry, there has been marked decline of large
shallow water discoveries in recent years. Hence, Exploration and Production
activities are increasingly taking place in deeper waters, more remote locations
and harsh climates. Therefore, higher levels of capex are being invested by oil
companies worldwide to fund highly technical and complex deepwater
projects. Infield forecasts total offshore capex to increase to nearly USD500bn
between 2011 and 2015 (2006-10: USD336bn). SAKP has promising prospects
in its core target markets comprising Malaysia, Brazil and Australia:-
Malaysia
Under Malaysia’s Economic Transformation Program, Petronas has committed
to a 5-year USD100bn capex program to boost domestic O&G production and
reserves. The national oil company targets to extract 1.7bn barrels of oil mainly
via greenfield deepwater developments and brownfield shallow water life-
extension projects. In addition, Petronas has also lined up initiatives on shallow
water fields whereby 22 new blocks have been identified. On top of that, there
is also allocation of RM3bn for Maintenance and HUC contracts.
There are currently 25 shallow-water marginal fields lined up whereby 10 are
ready for development. To-date, only two RSCs have been awarded whereby
the second RSC after Berantai was awarded to a JV between Dialog Group and
Australia’s ROC Oil in Aug 2011 for the development of Sarawak’s Balai
Clusters.
Whereas for deepwater development, 6 fields have been identified for future
development, with the Jangas and Ubah Crest fields targeted for first oil
production by 2013-14. SAKP is a major beneficiary of deepwater projects
whereby it was involved in the installation of offshore facilities at the Gumusut-
Kakap and Kikeh fields. Currently, SAKP is executing a US$69mn contract to
fabricate offshore structures at the Kebabangan deepwater cluster.
TA SecuritiesA Member of the TA Group 22-Jun-12
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Figure 8: Deepwater Projects in Malaysia
Source: Company
SAKP is also a key beneficiary of ETP programs whereby it has secured
contracts totaling USD1.08bn (RM3.36bn) including USD215mn (RM667mn)
from oil majors besides Petronas such as Petrofac, Shell and Murphy.
Brazil
According to Infield, Brazil’s offshore market has entered a prolonged growth
phase driven by prolific deepwater and pre-salt frontiers. The Brazillian
deepwater market with significantly high capex requirements is expected to
account for nearly 90% of national offshore capex. Key highlights from
Petrobras’ 2011-15 Business Plan includes the following initiatives:- (i)
USD225bn O&G investments whereby 57% (USD128mn) will be allocated to
Production; (ii) implementation of 19 large projects to add capacity of 2.3mn
barrels of oil per day; (iii) drilling of more than 1,000 offshore wells; and (iv)
pre-salt production to correspond to 40.5% of national oil production by 2020.
Australia
There is significant long-term deepwater potential in Australia, with activity
expected to peak in 2015 to almost USD2.1bn. Gas demand continues to
support LNG projects, beyond those already under construction. Sanctioned
LNG projects will elevate Australia to the world’s largest LNG exporter shortly
after 2015.
The group has secured substantial contracts in Australia including:-
USD170mn (RM527mn) Transportation and Installation (T&I) contract from
Apache Energy for offshore facilities for the Devil Creek Development Project
awarded in Oct 2009; and (ii) USD160mn (RM496mn) T&I contract from
TA SecuritiesA Member of the TA Group 22-Jun-12
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PTTEP Australasia at the Montara Development Project awarded in November
2010. SAKP’s current active projects in Australia include Domgas at Gorgon and
the Wheatstone LNG project. SAKP has further strengthened its presence in
Australia via the purchase of Clough’s (listed on Australian Stock Exchange)
marine construction business in August 2011.
Figure 9: SWOT Analysis
Strengths Weaknesses
- One of few licensees eligible to bid
for contracts by Petronas and its PSCs.
- Partnerships with world class O&G
operators.
- Integrated service provider with full
range of assets.
- Substantial orderbook attributed to a
single client (Petronas).
- RM4.9bn of Goodwill subject to
impairment test every year.
- Capital intensive
Opportunities Threats
- Increased E&P capex spend by
Petrobras’ in Brazil.
- ETP projects in Malaysia and
marginal field RSCs.
- Fluctuations in crude oil prices.
- Fluctuation in steel (key raw
material) prices.
- Late delivery of vessels.
- Execution risk from new ventures
in foreign markets.
Dividend Policy
Currently, the Group does not have a fixed dividend policy although we note
that both SapuraCrest and Kencana had paid dividends before the merger
exercise. Hence, we do not impute dividend payments from SAKP in our
forecasts pending guidance from management on its targeted dividend payout.
Peers Comparison
SAKP’s comparable international peers which offer full in-house EPCIC services
are as per Figure 10. However, we note that the following offshore construction
contractors have more established track records in delivering deepwater
projects.
Figure 10: International Peers
P/B (x) Divd Yield
CY12 CY13 CY12 CY13 CY12 CY12 (%)
Saipem SPA SPM IM 32.32 17,986.98 13.8 11.8 20.3 20.4 2.9 2.4
Technip SA TEC FP 78.64 11,004.36 16.9 12.7 14.6 17.9 2.4 2.1
Subsea 7 SA SUBC NO 120.40 7,086.15 14.7 10.1 9.0 10.9 1.2 1.9
Sapura Kencana SAKP MK 2.22 3,520.66 16.7 15.5 10.6 10.1 2.0 -
Aker Solutions AKSO NO 76.30 3,497.61 9.8 7.6 18.8 20.5 1.8 4.3
McDermott Inc MDR US 10.53 2,480.61 10.9 8.8 13.1 14.5 1.4 0.0
C&J Energy Inc CJES US 18.99 986.58 4.7 4.5 42.7 31.4 2.2 0.0
Ezra Hldgs Ltd EZRA SP 1.02 786.59 11.3 8.3 7.5 9.0 0.8 0.4
Average 12.3 9.9 17.1 16.8 1.8 1.6
Bloomberg
Ticker
Price (Local
Curr)
Market Cap
(US$ mn)
Core P/E (x) ROE (%)
SAKP’s comparable local peers in the O&G space are as per Figure 11. Currently,
no other Malaysian O&G company offers the full suite of oilfield services except
for SAKP. However, individual segments of SAKP’s operations competes with
the businesses of its peers such as Marine Services (Bumi Armada),
EPCC/Fabrication (MMHE), Drilling (Perisai’s new venture) and Development
& Production of Marginal Fields (Dialog). With the exception of Bumi Armada,
none of SAKP’s local peers have an international clientele base.
TA SecuritiesA Member of the TA Group 22-Jun-12
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Figure 11: Malaysian Peers
P/B (x) Divd Yield
CY12 CY13 CY12 CY13 CY12 CY12 (%)
Bumi Armada BAB MK 4.06 11,889.6 21.7 17.1 14.9 17.2 3.4 0.9
Sapura Kencana SAKPMK 2.22 11,109.7 16.7 15.5 10.6 10.1 2.0 -
MMHE MMHE MK 5.50 8,800.0 24.0 24.3 14.5 13.2 3.4 1.8
Dialog Group DLG MK 2.41 5,798.8 31.3 25.9 22.8 22.7 4.9 1.4
Perisai PPT MK 0.90 762.3 8.5 8.5 22.7 17.4 1.4 -
Average 20.5 18.3 17.1 16.1 3.0 1.4
Bloomberg
Ticker
Price
(RM)
Market Cap
(RM mn)
Core P/E (x) ROE (%)
Financial Highlights
Earnings Drivers
We project SAKP’s core FY13 EPS to grow 28% backed by its sizeable
RM14.35bn orderbook and improved margin derived from merger synergies. In
addition, FY13 earnings are further boosted by 6-months contribution from
SAKP’s FPSO Berantai and Berantai RSC. Thereafter, we include full-year
earnings totaling RM165mn p.a. from both projects to our forecasts. We expect
full-year contribution from one of SAKP’s newbuild drilling rigs in FY15. Our
estimates are based on orderbook replenishment of RM3bn in FY13 and RM4bn
in FY14-15 which we believe is achievable due to the delivery of new vessels
and assets in FY14-15 (FY14: two rigs + one DLV, FY15: Three PSLVs + one
DLV) that will increase the capacity of SAKP’s IPF and drilling fleet. There is
upside to our estimates as we did not factor in potential marginal field project
wins.
Liquid Balance Sheet
SAKP has a healthy balance sheet with current cash balance of RM2.1bn and
0.4x net gearing. SAKP has additional debt headroom of approximately
RM2.0bn assuming the group leverages up to a comfortable net gearing level of
0.8x. By gearing up, SAKP is able to fast track its asset expansion to fuel growth.
Nevertheless, we expect SAKP to have moderate net gearing of 0.45x in FY13-
14 assuming no additional asset purchases.
Potential Impairment of Goodwill
As a result of SAKP’s merger exercise, the Group has RM4.91bn of
goodwill/intangible assets sitting on its balance sheet which is equivalent to
96% of its current shareholders’ funds of RM5.12bn. This non-cash item is
subject to impairment test on annual basis and hence may negatively impact
SAKP’s bottomline if the Group is forced to write-down this item if business
condition deteriorates.
Valuation
Our target price of RM2.85 is based on CY13 PER of 20x, which is marginally
above the average 18.3x valuation of SAKP’s local peers. We believe our target
valuation is fair given SAKP’s superiority above its peers in terms of integrated
business model, orderbook, liquidity, and market cap. SAKP is currently trading
at 15.5x 1-year forward PE which is at a significant 10%-67% discount
compared to its large-cap peers Bumi Armada (17.1x), Malaysia Marine Heavy
Engineering (24.3x) and Dialog Group (25.9x).
TA SecuritiesA Member of the TA Group 22-Jun-12
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We note that SAKP is trading a higher forward earnings multiple in comparison
to its international peers. However, we believe the premium is warranted due
to the fact that the bulk of SAKP’s earnings in the near-to-medium term are
derived from Malaysia whereby local companies take precedence in Petronas
tenders. Hence, SAKP’s earnings risk profile would be significantly lower than
its global peers.
Earnings Summary
FYE Jan (RM mn) 2012 2013F 2014F 2015F
Revenue 4,672.6 5,125.2 5,195.8 5,692.6
EBITDA 646.6 1,343.9 1,401.4 1,581.1
EBITDA margin (%) 13.8 26.2 27.0 27.8
Pretax Profit 688.1 924.1 1,013.7 1,115.5
Net Profit 454.5 651.9 718.5 805.0
Core Net Profit 508.2 651.9 718.5 805.0
Core EPS (sen) 10.2 13.0 14.4 16.1
EPS growth (%) 18.0 28.3 10.2 12.0
PER (x) 21.9 17.0 15.5 13.8
Gross Divd/Share (sen) 0 0 0 0
[THE REMAINING OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
TA SecuritiesA Member of the TA Group 22-Jun-12
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Financial Summary P&L BALANCE SHEET
FYE 31 Jan (RMmn) 2012 2013f 2014f 2015f FYE 31 Jan (RMmn) 2012 2013f 2014f 2015f
Revenue 4,672.6 5,125.2 5,195.8 5,692.6 Fixed assets 2,797.1 4,042.8 5,208.8 6,504.1
EBITDA 646.6 1343.9 1401.4 1581.1 Intangibles 4,911.8 4,911.8 4,911.8 4,911.8
Depreciation (170.7) (246.7) (317.9) (397.0) Invt in Associates 8.2 8.2 8.2 8.2
Net finance cost (61.3) (236.6) (233.7) (233.7) Invt in JCEs 217.3 280.8 444.7 609.8
Associates + JV (0.3) 0.0 0.0 0.0 Other receivables 41.1 41.1 41.1 41.1
Jointly Controlled Ent 103.1 63.5 163.9 165.1 Deferred Tax 11.2 11.2 11.2 11.2
Pretax profit 688.1 924.1 1013.7 1115.5 Non-Current Assets 7,986.6 9,295.9 10,625.8 12,086.2
Taxation (90.4) (129.1) (152.1) (167.3)
MI (143.1) (143.1) (143.1) (143.1) Inventories 88.3 112.3 113.9 124.8
Core Net Profit 508.2 651.9 718.5 805.0 Trade and other rcvb 1,927.1 1,656.9 1,679.8 1,840.4
Derivatives 1.0 1.0 1.0 1.0
Per Share Data Tax Recoverable 33.5 33.5 33.5 33.5
Basic EPS (sen) 9.1 13.0 14.4 16.1 Cash and Deposits 2,111.0 1,878.2 1,680.4 1,672.1
Core EPS (sen) 10.2 13.0 14.4 16.1 Assets held for sale 13.5 13.5 13.5 13.5
Net DPS (sen) 0.0 0.0 0.0 0.0 Current Assets 4,174.3 3,695.4 3,522.0 3,685.2
Book Value (RM) 1.09 1.25 1.42 1.61
Net Tang Asset (RM) 0.11 0.27 0.44 0.63 Borrowings 3,433.0 3,642.7 3,910.5 4,395.3
Derivatives 2.3 2.3 2.3 2.3
RATIOS Deferred Tax 51.7 51.7 51.7 51.7
Non-current liabilities 3,487.1 3,696.7 3,964.5 4,449.3
Valuations
Basic PER (x) 24.8 17.3 15.7 14.0 Borrowings 1,065.9 1,065.9 1,065.9 1,065.9
Core PER (x) 22.2 17.3 15.7 14.0 Trade & other Payables 2,140.2 1,965.8 1,992.9 2,183.5
Gross yield (%) - - - - Derivatives 1.2 1.2 1.2 1.2
EV/EBITDA (x) 21.6 10.8 10.8 10.0 Income Tax Payable 12.9 12.9 12.9 12.9
P/BV (x) 2.1 1.8 1.6 1.4 Liabilities held for sale 4.3 4.3 4.3 4.3
P/NTA (x) 20.94 8.45 5.13 3.58 Current Liabilities 3,224.6 3,050.2 3,077.3 3,267.8
Profitability ratios Share capital 5,004.4 5,004.4 5,004.4 5,004.4
EBITDA margin (%) 13.8 26.2 27.0 27.8 Reserves 116.8 768.7 1,487.2 2,292.2
EBIT margin (%) 16.0 21.4 20.9 20.8 Minority interests 328.2 471.4 614.5 757.7
PBT margin (%) 0.1 (7.9) 3.4 4.2 Equity 5,449.4 6,244.4 7,106.1 8,054.2
Net margin (%) 9.7 12.7 13.8 14.1
ROE (%) 9.3 10.4 10.1 10.0 CASH FLOW STATEMENT
ROA (%) 4.2 5.0 5.1 5.1 PBT 924.1 1,013.7 1,115.5
Depreciation & Amortisation 246.7 317.9 397.0
Liquidity ratios Net Interest (236.6) (233.7) (233.7)
Current ratio (x) 1.3 1.2 1.1 1.1 Working Capital Changes 71.8 2.7 19.1
Quick ratio (x) 1.3 1.2 1.1 1.1 Income Taxes Paid (129.1) (152.1) (167.3)
Share of results of JCEs (63.5) (163.9) (165.1)
Leverage ratios CF from Operations 628.0 813.4 784.7 965.4
Total Debt/ Assets (x) 0.4 0.4 0.4 0.3
Total Debt/Equity (x) 0.8 0.8 0.7 0.7 Capex (999.0) (848.1) (898.3)
Net debt/ Equity (x) 0.44 0.45 0.46 0.47 CF from Investing (999.0) (848.1) (898.3)
Interest coverage ratio (x) 12.2 3.8 3.9 4.3
LT Debt Additions 799.2 678.5 718.6
Growth ratios LT Debt Repayment (846.4) (812.9) (794.0)
Revenue (%) 7.5 9.7 1.4 9.6 CF from Financing 491.9 (47.2) (134.3) (75.4)
EBITDA (%) 18.3 107.8 4.3 12.8
PBT (%) 28.4 34.3 9.7 10.0 Net Cash Flow 429.6 (232.8) (197.8) (8.3)
Core net profit (%) (3.6) 43.4 10.2 12.0 Beginning Cash 2,111.0 1,878.2 1,680.4
Core EPS (%) 18.0 28.3 10.2 12.0 Effect of exchg rates - - -
Ending Cash 2,111.0 1,878.2 1,680.4 1,672.1
Disclaimer
The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.
for TA SECURITIES HOLDINGS BERHAD (14948-M)
MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048
(A Participating Organisation of Bursa Malaysia Securities Berhad)
Kaladher Govindan – Head of Research