SKPETRO – Fundamental Analysis (1 Jul 2016)

Excel – Download the analysis file

Latest Financial – Q1 2017 Financial Report (28 Jun 2016)

FY17 Q1 Results Highlight:

  • SKPETRO booked a core net profit of RM147.6m in 1QFY17. Management has invalidated prevailing assumptions surrounding the group, guiding for RM7.0-7.5bn revenue and sub-30% EBITDA margin for FY17E.
    • Engineering & Construction (E&C) – 1QFY17 revenue fell to RM1,024.4m (-7% yoy; -5% qoq), in-line with negative operating leverage, and the reduction in scope of works.
    • Drilling – Segment revenue fell to RM623.3m in 1QFY17 (-19% yoy; – 12% qoq), dragged down by lower utilisation rate of the group’s drilling rigs.
    • Energy – 1Q revenue fell to RM297.1m (-29% yoy; -9% qoq), dragged down by lower production and weaker crude prices.
  • SKPETRO’s orderbook stood at RM19.8bn as at end-April 2016, of which RM4.9bn worth of works will be carried out in the remainder of FY17, RM3.9bn in FY18, and the remaining RM11.0bn from FY19 onwards.
  • SKPETRO has managed to secure jobs amounting to RM151m for two of its drilling rigs (i.e. SKD Berani, SKD Jaya). Barring any new drilling contracts, management expects eight of its sixteen drilling rigs will be stacked at end-FY17E.
  • Management has budgeted RM800m worth of capex to be incurred in FY17E. The budgeted capex are mainly spent for:
    • in-filling drilling
    • bringing the SK310 B15 Gas Field on-line.

Valuation:

  • In my opinion, fair value of SKPETRO around 2.2 (Uncertainty Risk: LOW).

Going Forward:

  • Major concerns – Low crude oil selling price, weak orderbook replenishment, further asset writedowns, and reduced drilling fleet utilisation coupled with declining daily-charter-rates.
  • I will continue to hold and accumulate SKPETRO as I believe that SKPETRO will be able to overcome the challenges ahead.

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

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