- We maintain our BUY call on SapuraKencana Petroleum (SapuraKencana) with an unchanged fair value of RM3.20/share, based on an FY16F PE of 12x.

- We leave our FY15F-FY17F earnings estimates unchanged as its 9MFY15 core net profit of RM1062.3mil was largely within our and consensus expectations – accounting for 74% of our FY15F estimate and 75% of street’s.

- The core net profit excludes the one-off pre-acquisition economic benefit of RM178mil from Newfield’s Malaysian production assets, which were acquired on 11 February 2014 and drilling provision write-back of RM64mil in 2QFY15.

- The group declared an unexpected second interim tax exempt dividend of 2 sen/share, bringing total DPS to-date to 4.35 sen/share (FY14: nil).

- Excluding the exceptional items, SapuraKencana’s 3QFY15 core net profit declined by 9% QoQ to RM384mil largely due to the seasonally weaker offshore construction activities in the second half, as works began earlier this year and peaked in 2QFY15. This was partially offset by higher share of profit from associates and JVs (+80% QoQ), mainly from contributions from its 50%-owned SapuraAcergy’s jobs in Australia and FPSO in the Berantai field.

- YoY, the group’s 9MFY15 core net profit surged by 42%, as the Seadrill tender rig acquisition in April 2013 only contributed to two-quarters of earnings last year and the maiden contribution of the Newfield assets this year.

- We expect the weaker offshore construction activities during the year-end monsoon season to be likely offset by maiden contributions from the group’s 50%-owned pipelay support vessels, Sapura Diamante (which started operations in June) and Sapura Topazio (which started operations in September). However, we highlight risks to our FY16F-FY17F forecasts, as the lower crude oil price may impact contributions from the energy division, which we have not yet factor in.

- Since the beginning of 2014, the group has secured RM8.1bil in new contract awards, of which 63% stems from tender rig charters. Including the recent multiple contract awards, the group’s order book has dipped QoQ to RM26.2bil (2.4x of FY15F revenue), which is still the largest in the O&G sector and above Bumi Armada’s firm orders of RM22bil. The stock currently trades at an FY16F PE of 9x currently.

Source: AmeSecurities