PP 7767/09/2010(025354)

25 June 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
25 June 2010
MARKET DATELINE

SapuraCrest Petroleum Share Price

Fair Value
:
:
RM2.23
RM2.46
Lower Marine Division Losses Boosted Earnings Recom : Market Perform
(Maintained)

Table 1 : Investment Statistics (SAPCRES; Code: 8575) Bloomberg: SCRES MK

Net Basic Adj. FD FD EPS FD Net
FYE Turnover Profit EPS EPS Growth PER C. EPS* P/NTA P/CF gearing GDY
Jan (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (x) (%)
2010 3,257.3 170.2 13.3 13.3 66.0 16.7 - 2.7 3.4 Net cash 2.7
2011f 3,824.8 215.3 16.9 16.9 26.5 13.2 17.0 2.2 7.9 Net cash 3.1
2012f 4,403.1 241.2 18.9 18.9 12.0 11.8 19.0 1.9 4.3 Net cash 3.1
2013f 4,683.1 253.7 19.9 19.9 5.2 11.2 21.0 1.7 4.1 Net cash 3.1
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ In line. 1QFY01/11 core net profit of RM50.7m accounted for 22% and 24% RHBRI Vs. Consensus
of our and consensus full-year estimates respectively, comfortably within Above
In Line
expectations. 1Q IPF revenue was significantly better both on a yoy and qoq
Below
basis, but this was offset by lower revenue from the drilling and marine
divisions as charter rates and utilisation rates remained soft. We note that Issued Capital (m shares) 1,276.7
1Q EBIT was boosted by lower losses from the marine division, but if we strip Market Cap(RMm) 3,013.0
this out, EBIT for the IPF, drilling and O&M divisions would have been flat Daily Trading Vol (m shs) 2.3
despite higher revenue. In our view, 1QFY01/11 EBIT margins are more 52wk Price Range (RM) 1.40-2.53

normal in the absence of higher-margin deepwater jobs that were completed Major Shareholders: (%)
Sapura Hldgs/related parties 40.3
in FY01/10.
Seadrill 23.6
♦ Visibility appears good for next two years, but ... With the orderbook EPF 9.2

standing at RM9.1bn, SapuraCrest’s earnings visibility appears to be good at FYE Jan FY10 FY11 FY12
least for the next two years. However, we highlight the risk that some EPS chg (%) 1.4 3.0 4.3
installation contracts could be delayed if the direction of crude oil prices Var to Cons (%) (0.8) (0.6) (5.4)
remains uncertain. Any review of the safety standards of offshore facilities
PE Band Chart
could potentially also escalate cost estimates and affect the viability of new
projects. As it stands, we note that Petronas Carigali’s drilling programme PER = 20x
PER = 16x
has seen delays since 2009, reflecting the uncertain E&P conditions. PER = 12x
PER = 8x
♦ Risks. 1) Rising costs of materials, labour and assets; 2) Potential margin
squeeze for the IPF division due to price competition for new contracts; 3)
Potentially, more competition from larger global players if the 6-month
moratorium on deepwater drilling in the Gulf of Mexico is not lifted; and 4)
Delays in contracts due to a review of the safety standards and designs of
offshore facilities. Relative Performance To FBM KLCI

♦ Forecasts adjusted slightly. We have adjusted our FY01/11-13 forecasts

SapuraCrest
slightly by +1.4-4.3% p.a. for these results, and factoring in the improved
financial position for the marine division.

♦ Investment case. While SapuraCrest has a leading position in its business

FBM KLCI
segments (i.e. offshore installations and charter of drilling rigs), and we have
no doubt that the company has a strong chance of being awarded new
contracts under more robust market conditions, we are wary of the potential
earnings risks under less certain conditions. We recently downgraded our
target PER to 13x, to be in line with the sector benchmark and this implies a
new fair value of RM2.46/share (vs. RM2.39 previously) based on FY01/12
PER. Hence, we maintain our Market Perform call on the stock. Yap Huey Chiang
(603) 92802171
Please read important disclosures at the end of this report.
yap.huey.chiang@rhb.com.my

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Table 2. SapuraCrest Quarterly Results

QoQ YoY
FYE Jan (RMm) 1Q10 4Q10 1Q11 Comments
(%) (%)

Installations 295.9 178.7 355.6 99 20 Better yoy and qoq due to commencement of new Petronas
Carigali installation contracts albeit which command more normal
high single-digit margins.
Drilling 242.2 187.1 194.8 4 (20) Lower yoy due to lower drilling charter rates.
Marine services 167.2 103.6 111.9 8 (33) Marine charters remain competitive, resulting in lower revenue
yoy, but conditions remain relatively flat qoq.
O&M 10.9 15.3 8.0 (47) (26)
Turnover 716.2 484.7 670.4 38 (6)

EBIT 76.7 56.3 95.9 70 25 Qoq earnings growth and margin enhancement mainly driven by
lower marine division losses and higher IPF profit, although this
was partly offset by lower drilling division earnings.
EBIT margin (%) 10.7 11.6 14.3

Interest expense (11.3) (10.9) (8.5) (22) (25)

Associates 2.7 27.5 11.3 (59) 313

Pre-tax profit 68.1 72.9 98.7 35 45 Qoq growth mainly driven by lower marine division losses,
although this was partly offset by the lower associate profits from
Sapura3000 in India.
Taxation (7.6) 7.3 (11.4) (256) 51
Eff tax rate (%) 11.1 -10.1 11.6

Minority Interest (34.9) (41.4) (36.5) (12) 5

Net profit 25.7 38.8 50.7 31 98

Basic EPS (sen) 2.0 3.0 4.0 31 98

Source: Company, RHBRI

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE Jan (RMm) FY10 FY11F FY12F FY13F FYE Jan FY11F FY12F FY13F
IPF 1,714.3 2,541.7 3,120.0 3,400.0 Division EBIT margin (%)
Drilling 844.3 771.1 771.1 771.1 IPF 7.5 7.5 7.5
Marine 646.1 483.9 483.9 483.9 Drilling 39.0 39.0 39.0
O&M 52.6 28.1 28.1 28.1 Marine 2.0 5.0 5.0
Revenue 3,257.3 3,824.8 4,403.1 4,683.1 O&M 13.0 13.0 13.0
Total 13.2 12.8 12.5
EBIT 362.4 504.7 562.6 583.6
EBIT margin (%) 11.1 13.2 12.8 12.5 Source: Company data, RHBRI estimates
Interest expense (45.2) 6.1 12.6 24.6
Associates 47.2 57.7 61.7 61.7
Pre-tax profit 364.4 568.4 636.9 669.9
Tax (31.2) (56.8) (63.7) (67.0)
Eff. tax rate (%) 8.6 10.0 10.0 10.0
Minorities (163.0) (296.3) (332.0) (349.2)
Net profit 170.2 215.3 241.2 253.7
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

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This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
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may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
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This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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