Business Times - Broker's Take - SPC
Singapore Petroleum Company
Jan 27 close: S$5.55
BNP PARIBAS EQUITIES, Jan 26
SINGAPORE Petroleum Co's (SPC) profit after tax and minority interest rose 60.1 per cent to $403.6 million in 2005, underpinned by a turnover increase of 51 per cent to S$7.5 billion. The record profit was driven by continuing tight global refining capacity and strong demand for refined products from China and India. It was aided further by the hurricanes that hit the US Gulf Coast in 2H05. The group was able to realise refining margins averaging more than US$4 per barrel for the year.
Refining capacity expanded 50 per cent from the acquisition of additional capacity after SPC bought into BP's stake in Singapore Refining Co (SRC). Indeed, SPC went from producing 95,000 barrels a day in 1H04 to 142,500 barrels a day in 2005. The BP retail network acquisition was completed in 4Q04, and the network has since been expanded to cover 39 service stations from 30 previously. The group's liquefied petroleum gas (LPG) market share also benefited from its 50 per cent interest in the SPC-Wearnes LPG joint venture. Given the stronger earnings momentum, we have upgraded our estimates for 2006 by $56 million to $419 million.
SPC's upstream moves into production-sharing contracts will enable it to benefit from the current high oil price environment. SPC has a 40 per cent working interest in the Sampang production-sharing contract, located off the shores of East Java, and a 20 per cent participating interest in production sharing contracts for Blocks 102 and 106 in the Gulf of Tonkin, Vietnam.
The upbeat macro outlook continues to bode well for SPC. Following the Asian financial crisis, refining margins remained in the doldrums before a recovery in 2003 turned margins positive again. China's enormous appetite drove product demand, while capacity shutdowns of refineries in the Philippines, Japan and Australia in recent years have helped reduce the surplus. The next four to five years could prove challenging with more refining capacity expected to be added in China and India.
We expect SPC's earnings to be driven by its larger stake in SRC, sustained operating margins and contributions from its recent acquisition of the BP retail network.
The stock is trading at earnings multiples of 6.5 times for 2005 and 6.7 times for 2006. Against comparable peers trading at a sector average of 8.8 times 2006 PE, SPC's valuations do not look demanding. We believe a slight discount to the sector average is fair and that the stock warrants a rating of about 8.0 times 2006 PE, which translates into a target price of $6.50.
BUY
- Compiled by MATTHEW PHAN
Jan 27 close: S$5.55
BNP PARIBAS EQUITIES, Jan 26
SINGAPORE Petroleum Co's (SPC) profit after tax and minority interest rose 60.1 per cent to $403.6 million in 2005, underpinned by a turnover increase of 51 per cent to S$7.5 billion. The record profit was driven by continuing tight global refining capacity and strong demand for refined products from China and India. It was aided further by the hurricanes that hit the US Gulf Coast in 2H05. The group was able to realise refining margins averaging more than US$4 per barrel for the year.
Refining capacity expanded 50 per cent from the acquisition of additional capacity after SPC bought into BP's stake in Singapore Refining Co (SRC). Indeed, SPC went from producing 95,000 barrels a day in 1H04 to 142,500 barrels a day in 2005. The BP retail network acquisition was completed in 4Q04, and the network has since been expanded to cover 39 service stations from 30 previously. The group's liquefied petroleum gas (LPG) market share also benefited from its 50 per cent interest in the SPC-Wearnes LPG joint venture. Given the stronger earnings momentum, we have upgraded our estimates for 2006 by $56 million to $419 million.
SPC's upstream moves into production-sharing contracts will enable it to benefit from the current high oil price environment. SPC has a 40 per cent working interest in the Sampang production-sharing contract, located off the shores of East Java, and a 20 per cent participating interest in production sharing contracts for Blocks 102 and 106 in the Gulf of Tonkin, Vietnam.
The upbeat macro outlook continues to bode well for SPC. Following the Asian financial crisis, refining margins remained in the doldrums before a recovery in 2003 turned margins positive again. China's enormous appetite drove product demand, while capacity shutdowns of refineries in the Philippines, Japan and Australia in recent years have helped reduce the surplus. The next four to five years could prove challenging with more refining capacity expected to be added in China and India.
We expect SPC's earnings to be driven by its larger stake in SRC, sustained operating margins and contributions from its recent acquisition of the BP retail network.
The stock is trading at earnings multiples of 6.5 times for 2005 and 6.7 times for 2006. Against comparable peers trading at a sector average of 8.8 times 2006 PE, SPC's valuations do not look demanding. We believe a slight discount to the sector average is fair and that the stock warrants a rating of about 8.0 times 2006 PE, which translates into a target price of $6.50.
BUY
- Compiled by MATTHEW PHAN
posted by SmartYInvestor at 10:39 AM
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