SKPETRO (5218) : SapuraKencana Petroleum - All debt jazz
Target RM4.48 (Stock Rating: ADD)
SapuraKencana is set to return to the Securities Commission’s shariah compliance list in the May 2015 review following the successful conversion of US$2.3bn of conventional loans into Malaysia’s largest Islamic facility, the company said in a press release today. We continue to value the stock at 15x CY16 P/E, at parity with our target market P/E. SapuraKencana remains an Add, with the impending shariah-compliant status and strong order book momentum as potential re-rating catalysts. It stays as our top pick among the oil & gas big caps.
What Happened
SapuraKencana has finalised the conversion of US$2.3bn (RM8.2bn) of conventional loans into Malaysia’s largest Islamic facility with no change in terms and rates and at a minimum paperwork charge. With this development, the company is set to make the SC’s shariah compliance list in the May 2015 review after being excluded in the Nov 2014 review.
What We Think
We are encouraged that management has taken the initiative to meet the SC’s requirement for shariah compliance. As at 31 Oct 2014, SapuraKencana’s total borrowings amounted to RM15.8bn, all conventional, while total assets were worth RM32.2bn. The company’s total conventional borrowings over total assets, therefore, stood at 49%, high and above the 33% threshold set by the SC. After the conversion, SapuraKencana’s total conventional borrowings over total assets should be reduced to an estimated 24%, allowing the company to become shariah-compliant come May. Another industry player, Perisai, successfully converted US$170m (RM606m) out of RM1.1bn in borrowings (as at 30 Sep 2014), of which most were conventional, into Islamic instruments in the week of 29 Dec 2014. Perisai’s total conventional borrowings over total assets should be reduced from 47% to an estimated 21% currently. This will allow Perisai to keep its shariah-compliant status in the May review.
What You Should Do
We advise investors to accumulate SapuraKencana shares. A robust order backlog of RM26.2bn, supported by multi-year contracts, and good leverage in the international market give the company an edge over its peers. The stock’s expected return to the SC’s shariah list in May is an added attraction.
Source: CIMB Daybreak - 16 January 2015
Target RM4.48 (Stock Rating: ADD)
SapuraKencana is set to return to the Securities Commission’s shariah compliance list in the May 2015 review following the successful conversion of US$2.3bn of conventional loans into Malaysia’s largest Islamic facility, the company said in a press release today. We continue to value the stock at 15x CY16 P/E, at parity with our target market P/E. SapuraKencana remains an Add, with the impending shariah-compliant status and strong order book momentum as potential re-rating catalysts. It stays as our top pick among the oil & gas big caps.
What Happened
SapuraKencana has finalised the conversion of US$2.3bn (RM8.2bn) of conventional loans into Malaysia’s largest Islamic facility with no change in terms and rates and at a minimum paperwork charge. With this development, the company is set to make the SC’s shariah compliance list in the May 2015 review after being excluded in the Nov 2014 review.
What We Think
We are encouraged that management has taken the initiative to meet the SC’s requirement for shariah compliance. As at 31 Oct 2014, SapuraKencana’s total borrowings amounted to RM15.8bn, all conventional, while total assets were worth RM32.2bn. The company’s total conventional borrowings over total assets, therefore, stood at 49%, high and above the 33% threshold set by the SC. After the conversion, SapuraKencana’s total conventional borrowings over total assets should be reduced to an estimated 24%, allowing the company to become shariah-compliant come May. Another industry player, Perisai, successfully converted US$170m (RM606m) out of RM1.1bn in borrowings (as at 30 Sep 2014), of which most were conventional, into Islamic instruments in the week of 29 Dec 2014. Perisai’s total conventional borrowings over total assets should be reduced from 47% to an estimated 21% currently. This will allow Perisai to keep its shariah-compliant status in the May review.
What You Should Do
We advise investors to accumulate SapuraKencana shares. A robust order backlog of RM26.2bn, supported by multi-year contracts, and good leverage in the international market give the company an edge over its peers. The stock’s expected return to the SC’s shariah list in May is an added attraction.
Source: CIMB Daybreak - 16 January 2015
