SapuraKencana faces weaker H2

> Questions over ability to sustain revenue base, Q4 usually the poorest season

PETALING JAYA: Analysts are concerned over SapuraKencana Petroleum Bhd’s (SKPetro) financial performance in H2 FY17 and its ability to sustain its revenue base despite having registered better Q2 earnings due to the cessation of the Berantai risk service contract (RSC).

Hong Leong Investment Bank (HLIB) Research said SKPetro’s core net profits of RM64.1 million and RM173.9 million for the second quarter and first-half of the year are within its expectation. However, its H2 performance is seen to be weaker in view of stacking of more rigs.

“That aside, Q4 is seasonally the weakest quarter of the year and we anticipate a weaker Q4 in FY17,” it said.

HLIB Research also opined that SKPetro’s order book of RM17.7 billion (including yearto-date win of RM3.3 billion) is insufficient to sustain the group’s revenue base (particularly for FY18) at its previous levels, in line with the general slowdown in the oil and gas industry.

Nonetheless, the research house said it has turned slightly more positive on SKPetro despite the weak earnings outlook due to relatively resilient energy earnings post-cost cutting, huge gas reserve with high monetisation potential and anticipated news flow on the upcoming Pan Malaysia’s transportation and installation packages.

HLIB Research has upgraded SKPetro to a “hold” call with a higher target price of RM1.57 based on higher price-to-book value of 0.7 times for FY18.

MIDF Research is maintaining its earnings estimates for SKPetro as Q3 and Q4 could potentially see earnings setback from low drilling rig utilisation, slower job executions and lower lifting of hydrocarbon.

However, with a current cash hoard of around RM2.7 billion, net gearing level of around 1.2 times and potential cash injection of around RM600 million from the cessation of Berantai RSC by June 2017, it believes that SKPetro will be able to weather the tough operating environment while seeking more opportunities.

SKPetro shares rose 7 sen or 4.67% to RM1.57 yesterday, with some 23.39 million shares changing hands.