SapuraCrest Petroleum Bhd (June 25, RM1.40)
BUY: Although 1Q2008 earnings were softer than expected, we see margins are on the recovery path, especially in the installation of pipelines and facilities (IPF) segment, which has the biggest turnover. This is due to the Sapura 3000 being in operation.
Looking forward, the IPF segment order book alone amounts to an estimated RM3.6 billion. This will last the group until 2010 (group total order book estimated at RM4.7 billion). By year-end, we see margins in the segment strengthening to 5.6% given a full quarter of contributions from the Sapura 3000. Given the renewed rig contract for the Teknik Berkat commenced in May 2008, we expect the drilling segment to also perform better towards 2H2009, hence bringing the group closer to achieving our forecast. Despite the strong order book, our forecasts for FY2009 (15% below) and FY2010 (26.8% below) are significantly below consensus estimates due to our conservative stance as earnings have disappointed in the past. FY2009 and FY2010 are 15% and 26.8% below consensus respectively. SapuraCrest is still rated a "buy" in our view because it is expected to achieve decent growth over the next two years and its current attractive PER valuation of 12.7 times on FY2010. — ECM Libra (June 25)