SapuraKencana to emerge as second largest non-Petronas player

Analysts are positive on the enlarged SapuraKencana entity anticipicated to emerge post merger for its scale and global track record that is likely to be the second largest non-Petronas player once it is listed by early-mid May.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), for the record, in July 2011, both SapuraCrest Sdn Bhd (SapCrest) and Kencana Petroleum Bhd (Kencana) announced that they had received an offer by a special purpose vehicle, Integral Key Sdn Bhd to merge them by way of share swap and cash payments.

“We foresee a two-year net profit of compounded annual growth rate (CAGR) at 12.2 per cent for the newly merged entity on the back of the financial year of 2012 to 2014 estimate (FY12-14E) net profits of RM580.9 million, RM709.1 million and RM852.6 million respectively.

“Driven by organic growth of its existing engineering, procurement, construction, installation and commissioning (EPCIC) businesses and start-up of Berantai marginal field earnings.” said the research house.

Given the individual share price of RM5.05 per share for SapCrest and RM3.35 per share for Kencana, the research house believed the new entity would be relisted at a price closer to RM2.20 per share.

In addition both companies had announced that their shares would be suspended from May 2, three market days before the entitlement date on May 8, 2012.

The listing of the new entity was tentatively set for mid-May.

The merged entity would have a variety of assets such as tender rigs, pipelay and derrick lay barges as well as offshore marine vessels (OSV).
Furthermore, there were also seven assets under construction that would be progressively completed within the calendar year 2014 (CY2014).

It also had a fabrication yard capacity of 100,000 metric tonnes per annum (mtpa) in Lumut and Labuan, and would have a combined 50 per cent stake in Malaysia’s first marginal field, Berantai, which was co-owned with Petrofac (M) Ltd (Petrofac). It also benefited from the existing strategic partnerships and track record previously forged by SapCrest.

The enlarged entity’s order book stood at RM13.5 billion as of January 2012, with the synergistic benefits being the ability to control resources allocation, optimise operating costs and cross-sell service ranges such as EPCIC or turnkey contractor, which would eventually lead to higher margins for the overall group.

As such, Kenanga Research saw more value beyond the merger. It added that it took a longer term view in regards to SapuraKencana as the research house believed that there would be contributions from the new acquisitions of Clough (M) Sdn Bhd (Clough) and AME (M) Sdn Bhd (AME).

This also included the Berantai marginal field, which would be evident in the group’s CY13 earnings and would be more reflective of the true value of the combined entity.

Kenanga Research’s CY13 proforma earnings forecast of RM730 million implied a fair value of RM2.63 per share or a market cap of RM13.1 billion for SapuraKencana,

Additionally, it also implied a fair value of RM5.82 per share and RM3.79 per share for SapCrest and Kencana respectively.