Just the stock for those looking for capital appreciation
For the next two years or so, SapuraCrest Petroleum Bhd's earnings seem secure, largely buoyed by its hefty order book of some RM4.8 billion.
Some 81% of this order book, or RM3.9 billion, is in the drilling and installing pipelines and facilities (IPF) business, which enjoys high margins.
The impact of the IPF and drilling businesses can already be seen in SapureCrest's earnings. For the nine months ended September 2008, the company posted a net profit of RM89.4 million on the back of RM2.6 billion in revenue, which marks a gain of 99% and 52.9% respectively from the previous corresponding period.
SapuraCrest's IPF and drilling businesses picked up after it took delivery of the Sapura 3000 which it jointly owns with Acergy MS Ltd. The Sapura 3000 is a self-propelled heavy lift derrick pipe-laying vessel and was delivered in early February 2008. It was built at a cost of RM850 million, but has since considerably brightened SapuraCrest's prospects.
The company has also been touted to secure a RM3.5 billion (US$1 billion) contract for the provision of IPF works at the Gemusut oil well located off the shores of Sabah. The contract should commence once SapuraCrest's negotiations with the production sharing contract parties — Shell, Petronas Carigali and ConocoPhilips — are firmed up. This contract could expand the company's order book to above the RM8 billion mark.
Another vessel smaller than the Sapura 3000 is being built in collaboration with Indian company Larsen & Toubro Ltd, but this vessel will be dedicated to pipe-laying activities in shallow waters.
Interestingly, SapuraCrest has caught the attention of billionaire tycoon John Fredriksen who, via his vehicle Seadrill Ltd, has amassed about 24% in the company. In a buying spree that started in May 2007, Seadrill has mopped up some 288.4 million shares on the open market.
Lately, the controlling shareholders of SapuraCrest — Tan Sri Shamsuddin Abdul Kadir and his family — have been accumulating the company's stock possibly because of the weakness in its share price. Year to date, the company's shares have fallen 52%, and underperformed the benchmark Kuala Lumpur Composite Index by about 14%.
But for all the orders it has secured, SapuraCrest has a poor dividend payout record, which is why long-term investors are shying away from it. However, with Fredriksen upping his stake, the stock is likely to offer something for those looking for capital appreciation.
