SapuraCrest Petroleum 3QFY09 : Drilling division driving earnings
· Within ECM estimates but below consensus
SapuraCrest’s annualised net profits came in spot on with our full year forecasts but some 7.8% below consensus estimates. Higher recognition of works done in the IPF segment during the quarter however threw revenue estimates off, but was mitigated by another worrying decline in
margins which helped keep net profit estimates on track. Y-o-y, the Group achieved cumulative revenue growth of 58% while net profits grew by a stronger 99%, the high growth levels coming as a result of the low base last year where operations were close to breakeven only.
· IPF boosts revenue, but margins still disappoint
Looking into segmental contributions, the IPF division turned in strong revenue growth with the Sapura 3000 at work. Margins however continued to be below expectations and experienced another weakening quarter. We believe this to be due to the Group having overlapping IPF contracts and hence still having to charter a third party pipelay vessel in order to complete their jobs.
· Drilling margins on the rise however
Given that the renewed rig contract for the Teknik Berkat commenced in May 2008, the drilling segment performed better than expected and with the recent announcement on the renewed contract for the T9 rig, the segment would be the star of the group into FY10.
With the rigs and vessels tied into contracts for the long term (normally 3 years), the drilling and marine segments will continue to provide the Group with steady earnings. Post that however, we see that rig charter and vessel charter renewal rates will be lower than what it is currently seen.
· HOLD call maintained
We are making some upward adjustments to our FY09 revenue estimates, but leaving net profits unchanged as we assume lower margins in the IPF segment. The TP of RM0.72 premised on 9x fully-diluted FY10 EPS remains unchanged, along with our HOLD call, our key argument being that the Group’s margins remain visibly weak, and hence its ROE which is in the 10-11% levels compared to industry average of 15-20%.