Singapore Petroleum Company: 2Q09 results in-line with expectations

2Q09 results in-line with our expectations, though negative surprise from impairment provision. Singapore Petroleum Company (SPC) reported revenue of S$1.7b (-48% YoY, 18% QoQ) and core operating profit of S$99m (-58% YoY, -1% QoQ) for 2Q09. Earnings contributions from both downstream and E&P divisions were in-line with our estimates but exceeded that of the Street’s. SPC’s downstream contributed operating profit of S$86m as refining margins averaged US$3.00/bbl, (vs. our forecast of US$3.10/bbl), while SPC’s E&P turned in operating profit of S$13m on the back of an average realisation price of US$62.61/bbl. The negative surprise, in our view, was another quarter of non-cash impairment provision of S$34.9m made in relation to Sampang development. No interim dividend was proposed, despite SPC’s positive cashflow from operations, strong balance sheet and low gearing of 0.2x. Given that the implied value from PetroChina’s bid for SPC’s assets is still a premium to SPC’s intrinsic value in our view, we urge investors to accept the offer.

Another quarter of non-cash impairment provision. SPC made a non-cash impairment provision of S$34.9m in relation to the Sampang development as it assessed that its asset carrying value exceeded the estimated recoverable amounts under the current price environment.This is the second consecutive quarter in which SPC wrote down one of its core E&P assets, following the first non-cash impairment provision amounting to S$43.3m made in 1Q09 for drilling SPC’s refining outlook likely to remain weak. While outlook for petrochemicals segment may be more positive as prices and volumes appear to be recovering faster than expected, we recallthat SPC’s refinery has no exposure to petrochemicals products. Further, with more new refining capacity from India, Vietnam and China coming on-stream in 2H09, we believe SPC could face tough competition ahead. The continual spread of Influenza A (H1N1) may dampen travel activities and result in weaker jet fuel demand. Oil refining margins could also face downward pressure especially in a scenario of slower-than-expected demand for refined products and faster-than-expected rise in crude oil prices, in our view.

We continue to urge investors to accept PetroChina’s Mandatory General Offer for the remaining shares of SPC. The acquisition of PetroChina’s purchase of Keppel’s entire shareholding in SPC, or 45.51% of the total issued share capital of SPC was completed on 21 Jun 09. In addition, PetroChina received valid acceptances of 21.99%, bringing its total percentage of controlled shares to approximately 67.30% as at 21 Jul 09. In accordance with the Securities and Futures Act of Singapore and the Singapore Code of Take-overs and Mergers, PetroChina would continue to make a mandatory conditional cash offer of S$6.25 for every SPC share acquired during the Offer Period. The closing date for the Offer Period will be 21 Aug 09.

Click here for more Offshore Marine Stocks Technical Analysis

Sponsored Links

Related Posts by Categories