SKPetro: Earnings impact by impairment

Results Update

For QE31/7/2015, SKPetro's net profit dropped by 60% q-o-q or 77% y-o-y to RM104 million while revenue increased by 24% or 4% y-o-y to RM2.8 billion. Revenue rose q-o-q primarily due to higher contributions from E&C division (coming from newly executed international projects during the period). PBT dropped 82% q-o-q due to impairment of O&G properties totaling RM539.9 million. If this impairment loss is excluded, PBT rose 79% due to higher contributions from services segment and lower expenses and corporate eliminations, partially offset by lower PBT from the Energy division.


Table 1: SKPetro's last 8 quarterly results


Chart 1: SKPetro's last 17 quarterly results

Financial Position

As at 31/7/2015, SKPetro's financial position is deemed acceptable, with adequate liquidity albeit elevated leverage. Its current ratio stood at 1.3 times while debts to equity ratio stood at 1.4 times.

Valuation

SKPetro (closed at RM1.87 Tuesday) is now trading at a trailing PE of 13 times (based on last 4 quarters' EPS of 14 sen).

Technical Outlook

SKPetro is in a downtrend in line with the sharp drop in its earnings. However, its share price has recovered from its recent low at RM1.40. This low could be its bottom as the MACD & Slow Stochastic have shown a bullish divergence.


Chart 2: SKPetro's weekly chart as at Sept 14, 2015 (Source: Share Investors)
 
Conclusion

After its recent sharp selldown, SKPetro can be considered for long-term investment. Its financial performance and valuation are fairly decent even in the tough environment for O&G sector.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, SKPetro.