SKPETRO – Fundamental Analysis (4 Jan 2015)

SKPETRO Analysis:-

Excel – http://1drv.ms/1ukfATE

Notes – http://tinyurl.com/mqm26z6

My View:-

  • Valuation:
    • 3-Y DCF:
      • Good Scenario: 4.58 (Fair value uncertainty: LOW)
      • Base Scenario: 4.21 (Fair value uncertainty: LOW)
      • Bad Scenario: 3.87 (Fair value uncertainty: LOW)
      • Ugly Scenario: 3.56 (Fair value uncertainty: LOW)
      • If growth of FCFF in the next 3 years is -13%, SKPETRO still worth 2.35.
    • Absolute PE:
      • FY14 (EPS: 0.189) – Fair value 2.31 (Fair Value Uncertainty: HIGH)
      • R4Q (EPS: 0.274) – Fair value 3.34 (Fair Value Uncertainty: MEDIUM)
    • Absolute EY%:
      • Trailing:
        • FY14 (EPS: 0.189) Fair value 4.27 (Fair Value Uncertainty: LOW)
        • R4Q (EPS: 0.274) Fair value 6.18 (Fair Value Uncertainty: LOW)
      • Forward:
        • FY15 (EPS: 0.225) Fair value 5.08 (Fair Value Uncertainty: LOW)
        • FY16 (EPS: 0.237) Fair value 5.35 (Fair Value Uncertainty: LOW)
      • EPS applied to reach the current stock price (2.35): 0.104
  • Valuation of SKPETRO is veryy attractive.
  • The recent sell-off in SKPETRO shares (-43% qoq) looks overdone. While the lower oil price has weakened the global oil & gas capex and hence, its business outlook, SKPETRO has a strong orderbook of RM26.2bn to buffer a medium-term industry slowdown. Also, its good geographical spread provides the flexibility to redeploy its asset should there be a prolonged slowdown in its home market. Key re-rating catalysts are the stabilisation in oil price, improved investor sentiment and possible return onto the Shariah compliant list in May15.
  • Remember the Warren Buffett’s most famous investment sayings: "Be fearful when others are greedy. Be greedy when others are fearful."

Latest Financial – Q3 2015 Financial Report (9 Dec 2014) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1820653

At the time of writing, I owned shares of SKPETRO.

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18 thoughts on “SKPETRO – Fundamental Analysis (4 Jan 2015)

  1. Hi Mr. Chong and fcwc,

    What is your take on the effect of a possible tightening of rates by the Fed on SKPetro?

    Some articles which may interest you, both seem to spell doom and gloom for companies which borrow heavily in USD.

    http://www.bis.org/publ/work483.pdf
    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11465481/Global-finance-faces-9-trillion-stress-test-as-dollar-soars.html

    Hope to hear your views on this.

    BTW, thanks Mr. Chong for your blog, really appreciate your analysis.

    Thanks both.

    Regards,
    Jack

    Like

    • Mahathir’s departure is not too surprising as he has been wanting to leave for awhile and anyway holds 10%… but don’t know much about Yeow. Perhaps he just decide it’s time to retire.

      In any case, it’s either one of two scenarios. Either is serious fraud, or is immaterial news. Fraud scenario seems very unlikely. Either way, don’t worry until the next financial statements come out. If I could write volatility I would.

      Liked by 1 person

    • I don’t know what kind of leadership Mahathir’s son provided to SKPETRO. I think his departure may not important. After all, due to uncertainties in macro-economic, price performance of many stocks are not well. Yesterday, while SKPETRO was dropping, prices of many oil and gas counters were also dropped too. For me, the purpose I bought SKPETRO is not because of Mahathir’s son.

      Like

  2. Recently they took another US$2.3B Islamic note just to be Syariah complaint again. This was reported in The Star on 16 Jan 2015.

    The loans portion maturing in 2 years… you can see from my analysis sheet under Figure 2 which is an extract from the Annual Report 2014.

    Liked by 1 person

    • Thanks for the info, appreciate it. No I meant who lend them the loan and why such a large portion mature so fast…? No doubt they will refinance it, but where did such an uncommon structure come from? If I were to guess, it would be partly from Seadrill and partly from Newfield, but still why 2 years maturity…?

      Liked by 1 person

  3. sorry moumouren2 the breakdown I got is from their annual report and that is all… recently they took up another loan and it is good if they can manage it but it might be bite back the other way… stay close to react..

    Liked by 1 person

    • Thanks, what other loan did they take? Are you referring to the RM16.5B refinancing in March? I’m searching high and low but still cannot find which loans the portion maturing in 2 years relate to…

      Apparently results have been quite moderate only, considering their investments. I was talking to one of my sources in Petronas and heard their order book might be refinanced. The only thing attractive is their recent price drop… but even after -43%, roe is still only 7%. Very much want to take advantage of this drop, but unless growth is on the horizon, 7% seems like so-so only…

      LC Chong, would you care to weigh in? What attract you most to this company?

      Liked by 1 person

      • The large orderbook and high earnings predictability attracted me. Now, the market sentiment is weak. I still believe SKPETRO will be able to go through this period.

        Like

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