May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 Vol m Results Review, Petra Energy (PENB MK) Neutral Energy - Oil & Gas Services Target Price: MYR1.95 Market Cap: USD227m Price: MYR2.13 Weak Start To The Year Macro Risks Growth Value 2.3 2.1 Petra Energy (PENB MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 194 Petra Energy's 1QFY13 net profit of MYR2.2m was lower than expected, accounting for merely 8.0% of our and 6.9% of consensus full-year estimates. Following the weaker earnings, we lower our FY13 and FY14 earnings forecasts by 15.0% and 5.6% respectively, and retain our NEUTRAL recommendation, with a lower FV of MYR1.95. 1.9 1.7 1.5 1.3 1.1 0.9 12 10 8 6 4 2 Source: Bloomberg Avg Turnover (MYR/USD) See important disclosures at the end of this report 177 160 142 125 108 91 1.81m/0.60m Cons. Upside (%) -25.4 Upside (%) -8.6 52-wk Price low/high (MYR) 1.05-2.17 Free float (%) 31 Shareholders (%) Wasco Energy 26.9 Shorefield Resources 18.3 Mohamed Nizam 9.1 Shariah compliant Danny Chan +603 9207 7611 danny.chan@rhbgroup.com Weaker than expected. Petra Energy (PENB MK) posted a revenue of MYR92.4m for 1QFY13 (-29.6% y-o-y, -51.7% q-o-q) on weaker than expected contributions from its main business segments: i) integrated brownfield maintenance and engineering, ii) onshore civil engineering, and iii) offshore marine support. This resulted in a weak 1QFY13 net profit of MYR2.2m, down 69.2% y-o-y. Q-O-Q, core profit returned to the black due to the higher wages and maintenance costs incurred in 4QFY12 for the marine vessels and offshore equipment tools. Core business loss weighs down on earnings. Its integrated brown field maintenance and engineering division s revenue plunged 30.7% y- o-y due to the lower utilization of vessels, resulting in a pre-tax loss of MYR7.3m, vs. the MYR3.1m pre-tax profit in 1QFY12. Meanwhile, its onshore civil engineering services segment recognized no revenue but nonetheless recorded a PBT of MYR13.0m due to the recognition of the final settlement and contract closure for the Kumang project. Lowering FY13 and FY14 earnings forecasts. We lower our FY13 and FY14 revenue forecasts by 15.0% and 5.6% respectively to reflect the weaker earnings and lower revenue assumptions for its other divisions, but retain our MYR2bn order win assumption from the Pan-Malaysia hook-up and commissioning (HUC) tender. We lower our earnings forecasts for FY13 and FY14 by 30.4% and 11.4% respectively as well. Maintain NEUTRAL, FV trim to MYR1.95. In line with our earnings downgrade, we lower our FV to MYR1.95. Our FV is based on 15x FY14 EPS, and includes a DCF valuation for its marginal oilfield at MYR0.23. The stock's valuation is unattractive at 18.7x FY14 EPS, which is at a premium over the average sector PER of 15.5x FY14 EPS (RHB s coverage). Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Total turnover (MYRm) 634 650 655 678 894 Reported net profit (MYRm) 17.1 3.3 7.4 19.2 36.7 Recurring net profit (MYRm) 17.1 3.3 7.4 19.2 36.7 Recurring net profit growth (%) 0.0 (80.6) 123.8 159.9 90.8 Core EPS (MYR) 0.05 0.01 0.02 0.06 0.11 DPS (MYR) 0.00 0.00 0.01 0.01 0.02 Dividend Yield (%) 0.1 0.2 0.3 0.6 1.1 Core P/E (x) 40 207 93 36 19 Return on average equity (%) 0.0 1.0 2.2 4.6 7.3 P/B (x) 2.14 2.01 1.97 1.41 1.33 P/CF (x) 330 6 11 8 8 EV/EBITDA (x) 12.4 16.0 13.6 12.0 9.1 Net debt to equity (%) 67.1 32.4 26.2 14.9 29.8 Our vs consensus EPS (%) (47.1) (0.8) Powered by Enhanced Datasystems EFA TM Platform
Petra Energy (PENB MK) Figure 1: PENB s 1QFY13 results table FYE Dec 1Q13 4Q12 % chg YTD YTD % chg Comments FY13 FY12 Revenue 92.4 191.2-51.7% 92.4 131.3-29.6% Lower y-o-y and q-o-q mainly due to lower revenue contribution from its integrated brown field maintenance, onshore civil engineering and marine offshore support divisions EBIT 6.4-6.7-195.5% 6.4 13.0-50.8% In line with the lower revenue Net interest -2.7-3.9-30.6% -2.7-3.3-18.2% expense Associates -0.1 0.0 - -0.1 0.0 - PBT 3.6-10.6-134.0% 3.6 9.7-62.9% Lower y-o-y due to losses incurred in its integrated brownfield maintenance division but partially offset by earnings of MYR13.0m due to recognition of the final settlement and contract closure for the Kumang project in its engineering services division Tax -1.5-3.3-54.1% -1.5-2.7-44.4% MI 0.1-0.1-288.7% 0.1 0.1 0.0% Net Profit 2.2-13.9-115.8% 2.2 7.2-69.4% In line with the lower revenue EPS (sen) 1.0-4.3 1.0 3.3 DPS (sen) 0.0 0.0 0.0 0.0 No dividends were reported for the quarter EBIT margin 6.9% -3.5% 6.9% 9.9% NTA/share (RM) 1.63 1.08 1.63 1.62 Source: Company See important disclosures at the end of this report 2
Petra Energy (PENB MK) Financial Exhibits Revenues in FY13 and FY14 to be bolstered by the Pan-Malaysia hook-up and commissioning tender. Profit & Loss (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Total turnover 634 650 655 678 894 Cost of sales (547) (564) (557) (573) (744) Gross profit 87 86 98 105 149 Gen & admin expenses (27) (40) (45) (47) (63) Selling expenses 12 4 4 5 6 Other operating costs (28) (26) (27) (27) (27) Operating profit 44 24 30 36 66 Operating EBITDA 73 50 57 63 92 Depreciation of fixed assets (28) (26) (27) (27) (27) Operating EBIT 44 24 30 36 66 Interest expense (21) (16) (14) (10) (17) Pre-tax profit 23 8 16 26 49 Taxation (6) (5) (8) (6) (12) Profit after tax & minorities 17 3 7 19 37 Reported net profit 17 3 7 19 37 Recurring net profit 17 3 7 19 37 Cash flow to remain stretched in the near term due to the marginal oil field project Cash flow (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Operating profit 44 24 30 36 66 Depreciation & amortisation 28 26 27 27 27 Change in working capital (76) 62 9 27 (1) Other operating cash flow 14 2 (3) 1 1 Operating cash flow 11 113 63 91 93 Tax paid (9) (3) (3) (3) (3) Cash flow from operations 2 111 60 88 90 Capex (11) (5) (27) (145) (145) Other investing cash flow 1 1 1 - - Cash flow from investing activities (10) (4) (26) (145) (145) Dividends paid (2) (1) (1) (4) (7) Other financing cash flow 4 (58) (41) 111 81 Cash flow from financing activities 2 (59) (42) 107 74 Cash at beginning of period 56 64 109 101 120 Total cash generated (6) 47 (7) 50 19 Forex effects 14 (2) (1) (31) - Implied cash at end of period 64 109 101 120 138 See important disclosures at the end of this report 3
Petra Energy (PENB MK) Financial Exhibits The company went through a rights issue in early FY13 to raise funds for its marginal oil field venture. Balance Sheet (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Total cash and equivalents 64 109 101 120 138 Inventories 11 12 9 10 10 Accounts receivable 274 247 272 239 310 Other current assets 6 7 10 10 10 Total current assets 354 374 392 379 469 Tangible fixed assets 446 425 425 423 421 Total other assets 1 1-137 251 Total non-current assets 447 427 425 559 672 Total assets 801 800 817 938 1,141 Short-term debt 110 116 182 182 282 Accounts payable 151 203 229 223 294 Other current liabilities 19 7 9 (1) 2 Total current liabilities 279 326 421 404 577 Total long-term debt 170 103 10 10 10 Other liabilities 30 30 39 39 39 Total non-current liabilities 200 133 48 48 48 Total liabilities 479 459 469 453 626 Share capital 98 107 107 161 161 Retained earnings reserve 192 195 201 216 246 Other reserves 31 39 39 108 108 Shareholders' equity 321 341 347 485 514 Minority interests 1 1 1 1 1 Other equity (0) (0) (0) (0) 0 Total equity 321 341 348 485 515 Total liabilities & equity 801 800 817 938 1,141 Profitability will depend on its operational efficiency. Key Ratios (MYR) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Revenue growth (%) 0.0 2.6 0.7 3.6 31.7 Operating profit growth (%) 0.0 (44.8) 22.5 21.3 81.5 Net profit growth (%) 0.0 (80.6) 123.8 159.9 90.8 EPS growth (%) 0.0 (80.6) 123.8 159.9 90.8 Bv per share growth (%) 0.0 6.3 1.9 39.7 6.1 Operating margin (%) 6.9 3.7 4.5 5.3 7.3 Net profit margin (%) 2.7 0.5 1.1 2.8 4.1 Return on average assets (%) 0.0 0.4 0.9 2.2 3.5 Return on average equity (%) 0.0 1.0 2.2 4.6 7.3 Net debt to equity (%) 67.1 32.4 26.2 14.9 29.8 DPS 0.00 0.00 0.01 0.01 0.02 Recurrent cash flow per share 0.01 0.34 0.19 0.27 0.28 See important disclosures at the end of this report 4
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Petra Energy (PENB MK) SWOT Analysis Strong reputation among its clients Delays and failure in clinching jobs in the Pan- Malaysia hookup and commissioning tender Well-positioned to secure some MYR2bn worth of contracts in the Pan- Malaysia hookup and commissioning tender Shortage of personnel and vessels if it secures larger than expected works in the Pan-Malaysia hook-up and commissioning tender P/E (x) vs EPS growth P/BV (x) vs ROAE 200 180 160 140 120 100 80 60 40 20 0 200% 170% 140% 110% 80% 50% 20% -10% -40% -70% -100% 2.5 2.0 1.5 1.0 0.5 0.0 8% 6% 5% 3% 2% 0% P/E (x) (lhs) EPS growth (rhs) P/B (x) (lhs) Return on average equity (rhs) Company Profile Petra Energy s principal activities are in the provision of brownfield oil and gas services. See important disclosures at the end of this report 5
2.17 NR 1.71 1.60 Petra Energy (PENB MK) Recommendation Chart Price Close 2.5 2.3 2.1 1.9 1.7 1.5 1.3 1.1 0.9 Recommendations & Target Price Buy Neutral Sell Trading Take Profit 0.7 Buy May-08 Aug-09 Dec-10 Mar-12 Not Rated Source: RHB Estimates, Bloomberg Date Recommendation Target Price Price 2013-05-13 Buy 2.17 2.17 2013-05-03 Buy 1.60 1.50 2013-02-26 Buy 1.71 1.37 Source : RHB Estimates, Bloomberg See important disclosures at the end of this report 6
RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. 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