KENANGA Investment Bank Research has revised its 12-month target price for SapuraCrest Petroleum Bhd to RM1.94, an increase of 169.4% from the previous target of 72 sen, on the back of a positive outlook on the oil and gas (O&G) industry.
Maintaining a “hold” on the stock at RM1.89, the research house said the new target price was based on the industry’s average 2008 price-earnings ratio (PER) of 14 times and the stock’s FY09 earnings per share (EPS) of 13.8 sen.
It said SapuraCrest was trading at a PER for financial year 2008 of 33 times, representing 59.2% and 135.2% premiums to the industry’s 2007 and 2008 PER of 20.7 times and 14 times respectively.
Kenanga Research said the current downside was limited due to a positive outlook of the industry, positive new flows following the buying-in stake from Seadrill Ltd, a Norwegian offshore drilling contractor, SapuraCrest’s capabilities in future deepwater and regional O&G development activities, and the group’s good track record with regional oil majors by securing large contracts and delivery.
It said the company’s net gearing as at July 31, 2007 stood at 69%, which comfortably gave it opportunity to gear up further for new contracts.
“Until SapuraCrest can deliver consistent profit margins with cost under control, its quarterly earnings will remain volatile with downside risk to disappoint,” said the research house.
SapuraCrest’s 1H08 profit before taxes (PBT) and net profit came in below its expectations due mainly to poor operating margin in the installation of pipelines and facilities (IPF) division despite a healthy turnover growth reported in 1H08, it added.
SapuraCrest’s turnover for the second quarter of financial year 2008 rose 54.5% year-on-year to RM570.5 million from RM369.2 million as activities in the IPF, offshore drilling and marine services divisions increased.
The group has secured a RM3 billion IPF extension contract on installation of subsea pipelines and facilities off Terengganu, Sabah and Sarawak for three years on July 27. Its order book stands at RM5.2 billion.
“Factoring in all known contracts and given the timing contribution of the IPF contracts will boost FY09 earnings forecast rather than FY08, we are raising our FY08 turnover by only 7.5% to RM2.1 billion from RM2 billion previously,” said Kenanga Research.
The research house would be incorporating a higher growth of 31.1% and 42.7% for financial year 2008 PBT and net profit to RM149.7 million and RM65.1 million respectively, assuming the operating margin for the IPF division is 4%.
It said favourable conditions that included weather downtime and fuel costs escalation being passed through to customer, and absorption of cost variations outside on agreed contract value by customers were incorporated in the new contract to ease margin squeeze.
“Nonetheless, our assumed operating margin of 4% for the IPF division is below the range of 10% to 15% indicated by the management,” said Kenanga Research.
“We believe the execution risk is a major swing factor for earnings, and remains our key concern. We are introducing our FY09 turnover, PBT and net profit of RM2.7 billion, RM274.6 million and RM156.7 million respectively,” it said.
Maintaining a “hold” on the stock at RM1.89, the research house said the new target price was based on the industry’s average 2008 price-earnings ratio (PER) of 14 times and the stock’s FY09 earnings per share (EPS) of 13.8 sen.
It said SapuraCrest was trading at a PER for financial year 2008 of 33 times, representing 59.2% and 135.2% premiums to the industry’s 2007 and 2008 PER of 20.7 times and 14 times respectively.
Kenanga Research said the current downside was limited due to a positive outlook of the industry, positive new flows following the buying-in stake from Seadrill Ltd, a Norwegian offshore drilling contractor, SapuraCrest’s capabilities in future deepwater and regional O&G development activities, and the group’s good track record with regional oil majors by securing large contracts and delivery.
It said the company’s net gearing as at July 31, 2007 stood at 69%, which comfortably gave it opportunity to gear up further for new contracts.
“Until SapuraCrest can deliver consistent profit margins with cost under control, its quarterly earnings will remain volatile with downside risk to disappoint,” said the research house.
SapuraCrest’s 1H08 profit before taxes (PBT) and net profit came in below its expectations due mainly to poor operating margin in the installation of pipelines and facilities (IPF) division despite a healthy turnover growth reported in 1H08, it added.
SapuraCrest’s turnover for the second quarter of financial year 2008 rose 54.5% year-on-year to RM570.5 million from RM369.2 million as activities in the IPF, offshore drilling and marine services divisions increased.
The group has secured a RM3 billion IPF extension contract on installation of subsea pipelines and facilities off Terengganu, Sabah and Sarawak for three years on July 27. Its order book stands at RM5.2 billion.
“Factoring in all known contracts and given the timing contribution of the IPF contracts will boost FY09 earnings forecast rather than FY08, we are raising our FY08 turnover by only 7.5% to RM2.1 billion from RM2 billion previously,” said Kenanga Research.
The research house would be incorporating a higher growth of 31.1% and 42.7% for financial year 2008 PBT and net profit to RM149.7 million and RM65.1 million respectively, assuming the operating margin for the IPF division is 4%.
It said favourable conditions that included weather downtime and fuel costs escalation being passed through to customer, and absorption of cost variations outside on agreed contract value by customers were incorporated in the new contract to ease margin squeeze.
“Nonetheless, our assumed operating margin of 4% for the IPF division is below the range of 10% to 15% indicated by the management,” said Kenanga Research.
“We believe the execution risk is a major swing factor for earnings, and remains our key concern. We are introducing our FY09 turnover, PBT and net profit of RM2.7 billion, RM274.6 million and RM156.7 million respectively,” it said.
source : EdgeDaily
No comments:
Post a Comment