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Wednesday, June 29, 2016

SAPURAKENCANA PETROLEUM - Resilient For The Long Haul

SAPURAKENCANA PETROLEUM - Resilient For The Long Haul
Author: PublicInvest | Publish date: Wed, 29 Jun 2016, 10:36 AM

SapuraKencana Petroleum (SAKP) is Malaysia’s largest integrated oilfield services provider. Offering services across the upstream oil and gas value chain, the Group provides value through innovative techniques and capabilities to ensure EBITDA accretion. In our current uncertain oil landscape, we believe SAKP’s comprehensive scope of work would allow them to undertake various jobs across the O&G suite thus would stand them in better stead vis-à-vis its peers. The Group’s growth going forward will be supported by its engineering and construction (E&C) division which is supported by long-term contracts for its offshore construction and subsea activities such as the deepwater pipelay support vessels (PLSV) for Petroleo Brasileiro S.A. (Petrobras) coupled with ongoing contracts in areas of fabrication, hook-up and commissioning (HUC) and for the longer term its energy portfolio comprising a total of c.9-10 TCF of gross gas reserves and resources in SK310 & SK408. We do acknowledge the interim weakness expected from lower activity across its services segments affected by industry clients to cut capex spending. SAKP is however a player for the long haul and we are thus initiating coverage with an Outperform call with a TP of RM1.90 based on our blended SOP valuation.

Integrated O&G player with robust order book of RM20.3bn as at end-June 2017. The Group is involved in activities such as fabrication, HUC, offshore construction and subsea services, drilling and energy, therefore having the capability to provide end-to-end solutions in the upstream business, coupled with the support of a strategic fleet of assets.

Geographical diversification. A global player, the Group has exposure in over 20 countries including Malaysia, China, Australia, Brazil, the United States of America (US), Western Africa and the Middle East.

Outperform. We are affirmed of SAKP as a strong operational and reputable player with normalised EBITDA standing c.31% as at FY16 and with its operations remaining on track. In this challenging period, the Group has poised itself on a strong financial footing which includes right sizing the organization for better efficiencies, which we believe would weather them through these lower oil price scenarios. Its borrowings will be gradually pared down, funded through its stronger cashflows and recent completion of refinancing in December 2015. Its net-debt-to-equity ratio stands at 1.3x in FY16 and going forward is expected to reduce to 1.1x in FY17F. We are not concerned as its debt is backed by assets that are supported by contracts coupled with sustained operating cashflows.

Source: PublicInvest Research - 29 Jun 2016

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