SAPURACREST PETROLEUM 2 June 2011
Sapcres stock code 8575
Fabrication to support full-fledged services
• We reiterate our BUY call on SapuraCrest Petroleum (SapCres) with an unchanged fair value of RM4.75/share based on an unchanged FY12F PE of 22x.
• SapCrest has signed an agreement to acquire a 50% stake in Labuan Shipyard and Engineering Sdn Bhd (LSE) from Real Mild Sdn Bhd for RM25mil cash. LSE is one of the largest engineering and shipyards in Southeast Asia. Its yard is sited on 30ha of land within the port of Victoria Harbour in Labuan with deepwater access. The price translates to a decent RM15.50 psf, compared withRM40 psf which Petronas paid for the Teluk Ramunia yard from Sime Darby Engineering last Friday.
• The Labuan yard, which can construct offshore platforms and ocean going vessels, has an annual capacity of 36,000 tonnes, 60% of Kencana Petroleum’s 60,000 tonnes. Brown field services provider Petra Energy Bhd recently signed an MOU to undertake minor fabrication works at the Labuan yard.
• In the immediate term, this yard will be supporting the repair and maintenance of SapuraCrest’s rigs, construction vessels/barges and offshore support vessels. We expect the group to start bidding for engineering, procurement and construction jobs in East Malaysia.
• We are positive about this acquisition which will provide the missing fabrication link to SapCrest’s suite of services, which currently include offshore installation works, pipe- lay, drilling, marine spread and operation & maintenance services. But pending the award of contracts to the yard, we maintain FY12F-FY13F earnings.
• This acquisition comprises a minor 1% of the group’s aggressive RM2.7bil (US$900mil) capital expenditure. But the total capital requirement could eventually mean an equity raising exercise as the group’s net gearing could rise to 159% by end-FY13F from a net cash of RM64mil as at 31 January 2011.
• We understand that the group may be planning to build two new DP3 derrick-lay barges with crane capacities of 1,200 tonnes and 3,500 tonnes, which will cost US$220mil and US$320mil, respectively. If the group secures a pipe lay job from Brazil’s tender of six packages this year, the group may be building another pipe-lay vessel worth US$400mil.
• The stock currently trades at an attractive CY11F PE of only 18x vis-à-vis over 20x for Dialog Group, MMHE and Kencana Petroleum. Given SapCrest’s dominance in IPF services in Malaysia, we are positive that SapCrest is likely to secure additional offshore installation jobs from Petronas’ prolific capex rollout.