Excerpts from analyst's report

OSK-DMG analysts:
Lee Yue Jer, CFA & Jesalyn Wong

We initiate coverage on Giken with a BUY and a DCF-derived SGD0.65 TP, a 124% potential upside. Giken transformed itself into an Indonesian onshore oil company with the 51% acquisition of CSE and is focused on the old wells programme. We see production surging to 6,300bopd/14,400bopd in FY15/16F (Aug) from c.900bopd at present. Giken’s market cap only prices in two existing fields, with three new fields not valued yet.

New oil company focused on old wells. Giken Sakata (Giken) owns 51% of Cepu Sakti Energy Pte Ltd (CSE), which has signed contracts for five oilfields under Indonesia’s old wells programme. The first two have proven and probable (2P) reserves and best estimate of contingent resources (2C) of 7.6m barrels of oil (mmbo) and 3.8mmbo respectively. We expect the next three fields to be larger.

Prodnforecast11.14Production expected to surge to 15,400bopd in 2017 from 575bopd
in 2014
Superior economics yield NPV/barrel (bbl) of USD16.60/bbl, low oil price variability. The Old Wells Programme has a much simpler cash waterfall that results in an NPV/bbl of USD16.60/bbl vs USD7-10/bbl under production sharing contracts (PSCs). The oil is sold at a fixed price to Pertamina, ie there is almost no oil price risk.

Business model is scalable at negligible cost, strong production ramp-up. CSE can secure new acreages at low cost, requiring only the signing of new contracts. Exploration risk is negligible, as the fields have produced before.

350_SydneyYeung_10.14Sydney Yeung, CEO of Giken Sakata. NextInsight file photo.It can even reach first oil in the year of contract signing, with no data acquisition costs. Drilling costs are also <20% of its peers. From c.900bbls of oil per day (bopd) currently, we expect 6,356bopd/14,336bopd in FY15/FY16F.

Strong profitability and cashflow. CSE was already profitable in 1Q14, producing c.300bopd. With a strong production profile, we expect earnings and cash flows to surge.

Giken is effectively trading at 3x FY15F P/E, with 1.1x EV/EBITDA. If management pays out 20% of earnings, the yield would be 5.8%/15.5% for FY15/16F respectively.

Deeply undervalued even after price surge. Share prices have surged post acquisition, but market clearly values only two out of its five fields. Our SGD0.65 valuation is based on a DCF of the five fields, which can still grow as it continues to sign more old wells acreage in the Cepu area.

 Key risks: Operational delay which may defer production growth; Short track record for CSE; Portfolio concentration.


Full report here.

Recent stories:

GIKEN SAKATA: New Indonesian onshore oil field play

GIKEN SAKATA: To boost earnings with oil & gas drilling

You may also be interested in:

You have no rights to post comments

Counter NameLastChange
AEM Holdings3.290-0.010
Avi-Tech Electronics0.250-0.005
Best World1.670-0.010
Broadway Ind0.090-
China Sunsine0.3950.005
Delfi Limited1.1400.020
Food Empire1.1000.010
Fortress Minerals0.290-0.010
Geo Energy Res0.280-
GSS Energy0.028-
Hong Leong Finance2.4900.020
Hongkong Land (USD)3.2100.020
ISDN Holdings0.335-
IX Biopharma0.0440.001
Jiutian Chemical0.025-
KSH Holdings0.290-
Leader Env0.0540.004
Medtecs Intl0.1410.005
Nordic Group0.400-
Oxley Holdings0.099-0.001
REX International0.168-
Sinostar PEC0.135-
Southern Alliance Mining0.675-
Straco Corp.0.470-0.015
Sunpower Group0.240-
The Trendlines0.090-
Totm Technologies0.038-
Uni-Asia Group0.890-0.045
Wilmar Intl3.6300.020
Yangzijiang Shipbldg1.4900.040

We have 732 guests and no members online

rss_2 NextInsight - Latest News