Reiterate BUY; TP unchanged at MYR4.10 (18x FY15 EPS). SAKP’s 4QFY1/13 results due next week are expected to meet our expectations. Nonetheless, we shave our FY1/14 net profit forecast by 7% to incorporate nine months of earnings from Seadrill’s tender rigs business vs 12 months previously. Operationally, job prospects are improving and SAKP is in an entrenched position to capitalise on these opportunities, both locally and abroad.

Results preview. We expect SAKP to report a seasonally weaker 4Q net profit of MYR100m (-31% QoQ), which would bring core FY1/13 earnings to MYR535m, in line with our forecast but below that of consensus. The QoQ weakness would be due to lower utilisation of its drilling rigs and pipe-laying vessels during the monsoon period. These two divisions are SAKP’s core earnings drivers, accounting for >80% of group pretax profit. While we had not initially anticipated any dividend for FY1/13, we now do not rule out a nominal 1sen DPS (10% payout).

Seadrill rig purchase to fuel growth. Our forecast 2-year net profit CAGR of 64% is driven by consolidated earnings post the acquisition of Seadrill’s tender rigs business, which adds c.MYR500m p.a. to group profit. The deal is expected to conclude by end-Apr 2013. There will be a private placement of new SAKP shares to part-fund the equity portion: (i) 400.8m new SAKP shares to Seadrill @ MYR2.70 each (USD350m), (ii) USD238m in 3-year redeemable exchangeable preference shares (REPS) to Seadrill @ MYR2.70 each, (iii) USD187m in deferred consideration, and (iv) USD250m from a placement of new SAKP shares to external parties (price not determined).

Improving business prospects. Job tenders are rising both locally and abroad. Of the MYR8-9b in domestic fabrication tenders, SAKP is a front-runner for the MYR1b Semarang centralised processing platform (CPP) fabrication job. It is also expected to secure an extension for the Pan Malaysia pipelay charter. In Brazil, the SAKP-Seadrill JV is among three final bidders for three pipelay support vessel packages worth a total of USD5b. The results of the tenders are expected to be known soon. SAKP won a USD1.4b job from Petrobras in 2011.

Source: Maybank Research - 14 Mar 2013