Affin Hwang cuts Petra Energy’s earnings outlook
PETALING JAYA: Affin Hwang Capital Research has cut Petra Energy Bhd’s financial year ending Dec 31, 2017 (FY17) earnings outlook by 21%, in light of the recent correction in global oil prices, which may lead to slower work execution in the near term.
“We are also trimming our 2018-19E earnings after tweaking some balance sheet items,” its analyst Tan Jianyuan said in a report yesterday. “As a result, we lower our target price to RM1.55 (from RM1.66 previously), but reaffirm our ‘buy’ call.”
Tan said the research house continues to favour the group for its turnaround story, healthy balance sheet – which provides ample room for leverage – as well as being a direct proxy to oil prices.
He said Petra Energy remains a strong contender to win the upcoming modification, construction and maintenance contract from Petroliam Nasional Bhd (Petronas), which will be split into six packages.
The group’s Q2’17 revenue is expected to improve quarter-on-quarter (q-o-q) and year-on-year (y-o-y), underpinned by higher level of work activity under Petronas’ Pan Malaysia contract in hand, he added.
“Overall, we expect Q2’17 net profit of about RM5 million, supported by higher work activity, but potentially offset by lower RSC (risk service contracts) contribution as a result of a lower Q2’17 Brent oil price, which has fallen 7% q-o-q from an average of US$54.6 (RM234.23) per barrel (bbl) in Q1 2017 to US$51 per bbl in Q2 2017,” Tan noted.
Furthermore, the group will likely be busy executing an engineering, procurement, construction and commissioning contract for an enhanced oil recovery project, which will stretch over the coming quarters.
Based on its scenario analysis, Tan said the research house believes that Petra Energy’s revenue in Q2’17 could see a 15-20% y-o-y increase.
Meanwhile, he said the research house believes the group’s current outstanding order book of RM1.4 billion, which will be expiring in May 2018, may not be fully translated into actual revenue due to its callout nature.