SapuraKencana Petroleum Bhd ( Valuation: 1.40, Fundamental: 0.65)
(Dec 28, RM1.99)
Reiterate buy with an unchanged target price of RM2.75: The company’s net profit for third quarter ended Oct 31, 2015 (3QFY16) plunged 62.7% year-on-year (y-o-y) to RM129.9 million, following provision for impairment on oil-and-gas assets totalling RM317 million.
The decline was cushioned by a foreign-exchange gain of RM123.7 million due to the strengthened US dollar. The latest blow came after last quarter’s impairment of RM539.9 million, taking total provision to RM857 million.
The company’s quarterly revenue increased 20% y-o-y and 3% quarter-on-quarter (q-o-q) to RM2.89 billion, following higher contribution from engineering & construction (E&C) and drilling divisions.
E&C revenue jumped 41% y-o-y and 12% q-o-q to RM1.8 billion, while the drilling division increased 4.4% y-o-y, but decreased 11.5% q-o-q to RM694 million.
Meanwhile, revenue from the energy division declined 10% y-o-y and 9.5% q-o-q to RM407 million as oil prices dropped and fewer barrels lifted.
The setback came after an anticipated V-shape recovery in oil prices did not materialise.
There is potential for further impairment as previous provision was made on an oil price assumption of US$55 (RM236.50) per barrel versus US$40 per barrel currently.
Despite results coming below expectations, we kept our forecast unchanged in anticipation of a lower tax rate, a higher share of profit from associates and an impact from cost-cutting measures in 4QFY16. — JF Apex Securities Bhd, Dec 23
SKPETRO (5218) - Potential further impairment for SapuraKencana (SKPETRO, 5218)
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