Solid outlook for SapuraKencana, Harbour Link ‘outperform’, Mitrajaya ‘buy’
SAPURAKENCANA PETROLEUM BHD
By M&A Securities
Target price: RM5.47
M&A Securities is maintaining its “buy” call on SapuraKencana, valued at RM5.47 with an attractive upside potential of 27%, underpinned by its strong order book of about RM26bil, which is the largest in Malaysia’s oil and gas industry.
It foresaw the group’s outlook to remain solid at the back of its large order book, comprising 51% (RM13bil) from Brazil, 24% (RM6bil) from Malaysia and the rest from South-East Asia, Australia and others.
M&A Securities also noted that the management indicated the size of its tender book was almost similar to the existing order book.
Additionally, it said SapuraKencana had finalised its acquisition of Newfield International Holdings’ nine upstream assets in February worth about US$896mil (RM2.8bil), comprising four blocks off Peninsular Malaysia (oil fields) and five blocks off East Malaysia (gas fields).
M&A Securities said the oil fields, with net reserves of 26 million barrels of oil equivalent with current production of 20,000 to 23,000 barrels per day, were expected to last seven to nine years based on current reserves, while upcoming gas discoveries would lengthen the gas field production period to 20 years.
It said post-integration with Seadrill had moved up the group to be among the largest tender rig operators with a market share of over 50%, and its drilling assets now expanding to 21 rigs with an average utilisation rate of 90% to 95%.
HARBOUR-LINK GROUP BHD
By Kenanga Research
Target price: RM2.20
KENANGA Research has initiated coverage on Harbour-Link with an “outperform” call at a target price of RM2.20/SoP (sum-of-parts valuation) share, and believes the group is a compelling logistics play in the growing local East Malaysian market.
It expects Harbour-Link to benefit significantly from the Sarawak Corridor of Renewable Energy (SCORE) initiative with Samalaju Industrial Park, which is one of the target areas of SCORE that will see significantly higher economic activities, moving forward.
Furthermore, it said Harbour-Link had made its maiden venture into mixed commercial and industrial property development with a potential gross development value (GDV) of RM1bil spanning over 10 years, on prime land situated near the Bintulu Port.
Kenanga Research believes this project will generate strong margins (more than 60% gross margins), with land and construction costs expected to constitute only 6% and 50% of GDV respectively.
It said buyer response for the first phase, estimated at around RM120mil, had seen an encouraging 60% take-up rate so far. Assuming a 40% pre-tax margin, Kenanga Research said it could contribute RM48mil to the group in financial year 2016.
It believes that Harbour-Link’s engineering division may also benefit from more engineering, procurement, construction and commissioning (EPCC) contracts to be awarded subsequent to the final approval of the massive US$27bil (RM87.9bil) Refinery and Petrochemical Integrated Development (Rapid) project in Pengerang, Johor.
MITRAJAYA HOLDINGS BHD
By Kenanga Research
Fair value: RM1.13
KENANGA Research has forecast Mitrajaya’s net profit to grow by 52% and 31% in financial years 2014 (FY14) and FY15 to RM38.3mil and RM49.9mil respectively, substantially higher than its construction universe’s aggregate FY14-FY15 earnings growth forecast of 16% and 9%.
It gave Mitrajaya a fair value of RM1.13, benchmarked at nine times forward price-to-earnings ratio on FY15 earnings, and a “trading buy” rating as the stock offered 50% potential upside.
Kenanga Research noted that Mitrajaya’s earnings had reached an inflection point after its core net profit grew a significant 40% to RM25.1mil in FY13, driven by its construction and property divisions.
It said that according to the management, order book had reached an all-time high of RM1.2bil (3.3 times to FY13 revenue), 140% higher than its previous historical high of RM500mil.
As for its property division, it said there was RM80mil locked-in sales, which would be recognised this year and about RM146mil ready stock yet to be sold.
With a tender book of RM1.75bil, Kenanga Research said Mitrajaya was targeting to win at least RM300mil jobs this year.
It said its tender book included the Petronas Rapid project (RM600mil) and building works for Ikano Cochrane (RM350mil), Bandar Setia Alam (RM300mil) and Putrajaya (RM200mil).