By Lawrence Yong
Alliance Research has sharply hiked its target price for SapuraKencana Petroleum (SAKP) to reflect an earnings jump from potential new businesses from its recently acquired tender rigs and a second vessel-hire contract in Brazil.
The company which already has an orderbook of RM18.2 billion, up a third compared to last year, is bidding for another RM18 billion in new business, analysts said.
“We expect active newsflow and contract awards for SAKP going forward, given the group’s tendering for up to RM18 billion worth of contracts,” said Alliance Research, a unit of Alliance Banking Group.
The bank-backed research house recommended a “strong buy” for SAKP shares and slapped on a target price of RM5.28, which means the company may return 30 percent over next 12 months. This is sharply up from its last target price of RM3.86.
SAKP’s shares have rallied by 22 percent in the last two weeks and traded at RM3.70 on May 15.
From SAKP’s current orderbook, 53 percent is for installation and offshore construction, 31 percent for drilling, 15 percent for fabrication and HUCC (hook up construction and commissioning) and the remainder for joint ventures, Alliance noted.
Among upcoming contracts, the largest could be a RM7 billion deal, its second vessel-hire contract to Brazil’s Petrobras. Upstream Online in late March reported that SAKP and partner Seadrill were shortlisted to supply up to seven new pipelay support vessels (PLSVs). SAKP was also pursuing the renewal of the Pan Malaysian installation long term contract for FY15 onwards, which could add another RM1-RM1.3 billion a year.
SAKP is also competing for the West Sepat, Ravva field in India, Dulang and Semarang, Bokor re-development and contracts from the North Malay Basin development, Alliance said.
Alliance however said it has scaled back SAKP’s rewards from its first risk service contract – the Berantai RSC – based on latest meetings with the company.
“It was still at its early production stages, and was not expected to turn in stable profits until after FY15,” SAKP said. “We now assume break even for FY14 and some RM30 million in profit contribution in FY15.“
Alliance said that it had previously factored in some RM30 million (FY14) and RM60 million (FY15) profit contribution from Berantai.
“We view that SAKP’s recent share price appreciation is a prelude to more,” Alliance said. It expects SAKP to post a strong four-year earnings per share compounded annual growth rate of 42 percent.
The report also noted that SAKP now has a market cap of about RM21.99 billion, making it one of the 15 biggest companies listed on Bursa Malaysia.
SAKP’s major shareholders are Shahril Shamsuddin (19 percent), Mokhzani Mahathir (15.9 percent), the Employees Provident Fund (9.1 percent) and Seadrill (6.4 percent). About 45 percent of the company’s shares are on free float.
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