SKPETRO - Best Of Time, Worst Of Time

1. Proxy to Malaysia Oil & Gas sector. SapuraKencana Petroleum Bhd (SKPETRO) need no further introduction as the Company is generally viewed as the proxy to Malaysia Oil and Gas sector. Note that SKPETRO provides integrated oil and gas services and solutions with its businesses divided into segments such as Offshore Construction & Subsea Service (OCSS), Drilling and Energy Services (DES) and Fabrication, Hook-Up & Commissioning (FAB and HUC). Latest market cap is RM14.7b and this made it a member of the prestigious FBMKLCI.

2. 9M14 earnings jump 74% YoY to RM1.30b. In the latest quarter result, SKPETRO 9M14 earnings recorded huge jump as DES division earnings improved 14% to RM265m while Corporate Expenses declined 38% to RM97m. This signal that the Group has already start to manage its cost more efficiently.

3. Still cum dividend of 2.0 sen. The ex date is 12-Jan-2015. YTD, 4.35 sen has been declared and this translate into dividend yield of 1.9% based on share price of RM2.24.

4. Brent crude oil should have bottomed. Last Friday, Brent crude oil prices jumped 3.6% to USD61.38 per barrel. As it is, Saudi Arabia (world largest producer of crude oil with estimated 13% market share) has for the first time expressed its bullish view on crude oil. Full news can be read here.
http://www.bloomberg.com/news/2014-12-21/saudi-arabia-confident-in-oil-rebounding-on-global-growth.html

Also, it is logical that inefficient producer (with cost of production above USD65/barrel) should already stop production and all these means Brent crude oil should have bottomed.

5. Deep in value as SKPETRO has plunged 55% to RM2.24 (from its highest point of RM4.96 this year). Of course this is in line with crude oil plunge, the exclusion from Shariah list and highest fear on Oil and Gas sector at this juncture. Conventional wisdom tells me that me to look at any stock that has plunged more than 50% from its peak and SKPETRO definitely will be the one.

6. Buy with short term target of RM3.00 suggesting 34% upside. My Fair Value of RM3.00 is based on Forward PE of 13x to estimated FY16 EPS (year end January) of  23.07 sen.