SapuraKencana Petroleum - Another new construction vessel in the fleet BUY

We maintain our BUY recommendation on SapuraKencana Petroleum Bhd (SapuraKencana), with an unchanged fair value of RM5.70/share, based on an FY15 PE of 22x, which is the 2007 peak achieved by Kencana Petroleum.
- China-based and SGX-listed Cosco Corporation has delivered SapuraKencana 1200, a heavy-lift pipelay vessel to SapuraKencana. The 154-metre-long ABS-class ship is capable of shallow and deep-water operations. Built at Cosco Nantong Shipyard, the vessel is designed to carry out multiple functions including oil piping processing, laying, installation and heavy lifting.
- The vessel is equipped with a DP3 dynamic positioning system, which enables it to carry out heavy-lifting installation of large-scale offshore structures such as platform blocks, modules and jackets, as well as S-type pipelaying operations in water depths of up to 1500 metres.
- This is one of two pipelay-heavy construction vessels which SapuraKencana had ordered from Cosco Corporation back in September 2011 for US$227mil. Including equipment, each vessel is expected to cost up to US$200mil. Including seatrials, testing and commissioning, this vessel was delivered on schedule while the next one is expected in 3-6 months from now.
- Meanwhile, SapuraKencana has signed a RM16.5bil (1.1x FY15F estimated gross debt of RM12.8bil) refinancing club deal to replace and streamline existing facilities from the merger of SapuraCrest Petroleum and Kencana Petroleum in 2012, as well as to fund the US$2.9bil acquisition of Seadrill’s tender rig business and the US$896mil purchase of Newfield Exploration's Malaysian production assets. This deal – signed with 13 local, regional, and international banks – was expected.
- The group’s 4QFY14 results, scheduled to be announced on 25 March, is likely to come in within expectations, excluding acquisition costs for Newfield’s assets. We understand that there will be no significant provisions for a fire that had broken out on the group’s tender rig at Murphy Oil’s Kikeh field off Sabah, East Malaysia.
- The earnings in subsequent quarters are expected to significantly re-accelerate from Newfield International’s oil & gas production blocks in Peninsula Malaysia, Sabah & Sarawak.
- Given that its aggressive acquisitive earnings acceleration (+94% in FY14F & +53% in FY15F), the stock currently trades at an attractive FY15F PE of 16x - a 45% discount to SapuraCrest Petroleum’s peak of 29x in 2007.
Source: AmeSecurities