SKPETRO (5218) - (fayeTan) - SKPETRO (3) - 5 reasons why it's time to shine again

1. Brent crude oil price has surged 60%; stronger than my estimate. From its recent low of USD30/barrel, the latest price is now USD50/barrel. While the USD20/barrel looks small in number, in percentage it is huge 60%. Brent crude oil price performance exceeded my expectation as it had surged above USD50/barrel now (previously my estimate is 2nd half of the year). While many other analysts will give you the demand and supply reason, I prefer to view oil price from political standpoint. I believe that Saudi Arabia has more or less achieved its objective to kill off the competitors from US Shale player. Some inefficient producers (those with cost of production above USD60 per barrel) has also died off. Near term price between 50 to 60 per Barrel from now until end-2016 should be achievable in my view.

2. Share price has declined by around RM1.60 and recovered to RM1.70. I start to have position in SKPETRO when it was RM2.00 and I still keep it. The previous drop to around RM1.60 is due to Seadrill sold off its 8.2% stake in SKPETRO at book building price of RM1.58. Anyway, that's history. Market is forward looking and has recovered along with Brent crude oil price uptrend.

3. Upcoming result by end-June should not see huge provisioning repeat. The 4QFY16 provisioning of RM1.28b is huge but that one is made when Brent crude oil drop from 50 all the way to 30 as of end Jan. Reason for the provisioning is because SKPETRO assets have to be marked to current market prices, which is dropping in 4QFY16 by 40% within a quarter to USD30/barrel. From Jan to April (the quarter to be reported end of this month), Brent crude oil price has increased. As a result, it is unlikely to see more provisioning. In fact, some writeback is possible since Brent crude oil price has now recovered.

4. Oil price cannot (and will not) stay low forever in the long run. Demand on oil can only goes up. Supply is limited. I don't know the exact amount but I know we only have x amount barrel of oil. Eventually, after all the short term oversupply, oil price should increase again.

5. Some have missed the opportunity to buy at RM1.60, will you keep waiting?. The share price of RM1.60 is at 5-year low and some may have missed it. But it is up to you whether you want to start having exposure in SKPETRO.I have to repeat again on the 3 years holding period as short term crude oil price will swing the share price. To sum up my writing - IT'S TIME FOR SKPETRO TO SHINE AGAIN.

SKPETRO (5218) - (fayeTan) - SKPETRO (3) - 5 reasons why it's time to shine again