1Q09 results exceeded both ours and consensus' expectations. Singapore Petroleum Company (SPC) reported 1Q09 PATMI of S$55.5m (-43.7% YoY), exceeding our estimates and the Street's of S$33.6m. SPC's better-than-expected refining margins of US$4.50/bbl (vs. our forecast of US$3.10/bbl) was the quarter's main positive highlight, which led to a turnaround in operating profit of S$118.6m after two quarters of consecutive losses for its downstream activities. The negative drag ? though not unexpected - was the decline in average realisation achieved by SPC as a result of the steep drop in oil prices. This was, however, partially offset by a stronger US$. As such, E&P recorded an operating loss of S$18.2m for the quarter.
All bets off for Jeruk. SPC made a non-cash impairment provision that amounted to S$43.3m for drilling costs incurred from 2003 to 2006 at the Jeruk field. This suggests that the Jeruk discovery, once believed to contain over 170 million barrels of oil resources, would not proceed into oil production.
SPC's current share price implies overly-optimistic refining margin assumptionsof US$4.50/bbl and US$4.60/bbl for FY09 and FY10 respectively, which we opine would be difficult to achieve given the challenging outlook. Due to the lack of catalysts and no improvements in the leading indicators, we keep our forecasts and price target unchanged. As share price has surged 44% since our initiation, we downgrade SPC to NEUTRAL.
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