SapuraKencana’s order book provides earnings support, says AmResearch

SapuraKencana's rig making facility

KUALA LUMPUR: AmResearch believes SapuraKencana’s current order book will provide earnings support over the next two to three years, despite the weak sector outlook. 

Its RM21bil order book accounts for 2.2 x financial year ending Jan 31, 2017 forecast revenues. 

“The stock currently trades at 0.9x PBV and an attractive 2016 PE of 11x, below its two-year average of 17x,” said AmResearch in a note on Thursday. 

In 2015, the company signed a Murabahah Term financing facility of up to US$2.1bil (RM9bil) with a consortium of Malaysian, regional and international banks.

The 6-year multi-currency Islamic facility will be used to refinance SapuraKencana’s existing short term Islamic Facility. But the more important reason is to ensure the retention of its syariah-compliant listing status.

The package is similar to the earlier RM7bil Multi-Currency Islamic Medium Term Notes, launched in June this year. The proceeds from that facility were to refinance the group’s earlier RM16.5bil multi-currency financing facility in 2014.

However, earnings prospects for the company are are weighed down by the current low oil environment, which has depressed charter rates and asset values for upstream oil & gas players. 

Its 17 rigs currently have a utilisation rate of 70% and this could drop to 50% next year. AmResearch said it is likely that there could be impairments for these assets by the end of the financial year, albeit partly offset by possible revaluations of the group’s oil producing assets in Malaysia. 

However, this may be partly offset by the group’s offshore construction division, as three more flexible pipelaying support vessels will begin operations in Brazil – Sapura Jade in February 2016, Sapura Esmeralda in April 2016 and Sapura Ruby in August 2016.

It maintains a Buy call on SapuraKencana with an unchanged target price of RM2.45/share, pegged to an 2016 PE of 14x.