SapuraCrest - BUY

CBRS: SapuraCrest – Net profit almost doubled (Results Note)



Price: RM0.765

Target Price: RM1.15

Recommendation: BUY



Within expectations. 9M09 net profit of RM89.4m accounted 67.2% and 72.4% of our full year estimate and consensus, respectively. We expect 4Q09 earnings to sustain by the seasonally stronger 2H and continuing operations from the contracts secured.

YoY, 9M09 net profit almost doubled to RM89.4m driven mainly by increased activities in the IPF (103.4%); Drilling (25.8%) and Marine Services (21.8%) division whilst PBT margin rose to 7.9% from 6.4% YoY underpinned by improved operations on better day rates and contract terms.

3Q09 net profit increased by 15% QoQ and 58.3% YoY to RM36.9m. This is largely attributable to higher revenue contribution from IPF (33.2% QoQ and 112.5% YoY) and Drilling (3.2% QoQ and 19.8% YoY) divisions. Profit margin registered by Drilling division improved (34.6% from 29.6% QoQ and 21.7% YoY) due mainly to more favourable contract terms.

IPF and Drilling divisions to continue to drive earnings. The loss from JV of Sapura 3000 which was deployed for the RM3.0b IPF works awarded by Petronas narrowed to RM6m from RM26.1m in 1H09. These two divisions collectively contributed about 81.2% of revenue to-date while account more than 95% of total order book of around RM5.5b currently.

Maintain FY09 net profit of RM130.8m, however lower FY10 net profit to RM186.1 (-9%). SapCrest’s unbilled order book will underpin earnings for the next 2 years. Nevertheless, we are lowering our FY10 PBT margin to 11.5% from 12.9% mainly on expectation of tougher operating outlook on the back of uncertainties in the global economy; therefore easing the power of pricing.

Maintain BUY, Target Price lowered to RM1.15 (from RM1.54) based on PER of 8x which is in line with the O&G industry. Strong order book and ownership of capable vessels are expected to support earnings. SapCrest is forecasted to trade at undemanding 5.3% PER in FY10. However, continue decline in world oil price which could lower capex spending of oil majors and delays in contracts affect market sentiment of the O&G industry and may pose risks to our recommendation.