SAPCRES : Oil & Gas Laggard

SUMMARY: With the financial outlook, price below RM1, available shares for public, technical outlook, accumulation by major players and migration to the main board in early 2006; its suitable a candidate for medium to long term holding. Minimum 3 months holding is suggested. For shorter-term trading, wait for volume with price breakout (accompany by volume) from the price channel line (blue colour lines & circle : see the chart above).

TECHNICAL &  EVENTCompare to Shell Refining, Sapcres is not a direct beneficiary thus did not profit much from the increase in crude oil price. In fact most of local oil & gas; gas are are not; could be due to their position at the bottom of the supply the supply chain.

The sector's leader stock price could be already 'high' and fundamentally not undervalued anymore. Maybe we should look at those laggard.SAPCRES could follow the leader in the sector sooner or later provided the oil & gas; gas sector still 'on'.

Early of Sept, there were some major buying by EPF and one of the SAPURA GROUP CO. causing some price & volume increases. In fact EPF still buying in mid of Sept and end of September. Its still under accumulation by major players even AFTER the slightly below market participation 2QFY01/06 earnings was released. (At at time of writing, I believe so there will be further buying by EPF - I guess) This fact should give a comfort in holding this stock.

As at 20 Sept 05 the shares available to the public is estimately only 24.1% (this is relatively small)

Technically speaking, this stock is attractive since its near to the support level. As long as the support is there, I don't think its a problem to include this stock in your medium to long term portfolio. ( I will say at least for 3 months). Anyway there's still the ability to gain in shorter period (few weeks) provided the support is there and if the overall market on bullish mode.

SapuraCrest’s migration to the Main Board in early 2006 could also provide a re-rating on the stock.

What financial analyst says (the analysis after the quarterly earning released):

By RHB Research (issued 20 Sep 05)"Two key contracts that IPF division is servicing are the RM2bn OIC contracts (now in its second year) and the one-year RM144m Brunei Shell contract, which is the company’s first installation contract outside Malaysia (see note dated 8 December 2004). The new contracts are expected to double its revenue base from the installation works in Malaysia and Brunei to RM800m in FY01/06, with pretax margin ranging between 8-12% (FY01/05 margins : 5%). Its IPF division commands more than 95% of the local market share and faces no competition from local players".

"No change in profit forecasts and OUTPERFORM recommendation. We continue to like SCrest for its three strong upstream divisions, bright earnings visibility and attractive valuations. At FY01/06 fully diluted PER of 18.4x (basic PER: 11.1x) relative to 2-year average EPS growth of 27.4%, the stock is priced attractively at PEG of 0.7x. Maintain OUTPERFORM recommendation with an indicative fair value of RM1.56/share, based on 26x FY01/07 EPS"

AMResearch (issued on 20 Sept 05)"Near term earnings secured. SapCrest’s sizeable order book, approximating to RM1.9bn, would keep it busy up to 2007. Hence, near term earnings are secured.
"Still a Buy. SapCrest is currently trading at undemanding valuations.The Company trading at 9.1x PER on basic CY06 EPS and 7.6x on CY07, and 9.9x PER on CY0
gradual diluted EPS and 8.8x on CY07. We maintain our Buy recommemdation with implied upside of 21.2% to our target price of RM1.20, based on 12.0x PER. Valuation is in line with average PER of listed oil & gas companies."
Mayban Research (23 Sep 05)"We are also maintaining our BUY recommendation on SapuraCrest (FV: RM1.85). We hail its latest partnership with Stolt Offshore, to construct, manage and operate the Sapura 3000 heavy derrick lay vessel. The JV is envisaged to undertake heavy-lift work and rigid pipelay in the Asia Pacific (including Shakalin), India and Middle East regions. The vessel, currently being constructed by the consortium comprising Huisman Special Lifting Equipment B.V and Sembawang Shipyard Pte Ltd, is expected to be operational by the middle of next year.