Stock to Watch: Skpetro [5218]

Being Malaysia’s first full-fledged EPCIC (engineering, procurement, construction, installation & commissioning) player and the fifth largest EPCIC company by assets in the world, this giant deserves our attention. SapuraKencana Petroleum’s wide range of services, which is comparable to global players such as Technip, J.Ray McDermott and Saipem, and its strategic partnership with global oil and gas (O&G) players such as Seadrill, Subsea 7 and Quippo have enabled the company to gain a strong foothold in the international O&G market. It’s global presence, coupled with the liquidity and wavy movements of its shares, provides traders ample of opportunities to profit and thus we would definitely want to have this share in our watchlist. Let’s analyse the chart together.

Skpetro’s uptrend lasted for half a year before retracing from its high of RM3.17 in December 2012. Recently, the price broke out of the descending triangle (using RM2.85 as the base of the triangle) with high volume but did not managed to shoot up as it met the major resistance of RM2.93. The short-term outlook is still bullish, however, as the uptrend remains intact (notice how the 2 bars after the breakout bar creates higher low each day). This creates an opportunity for longer-term traders to accumulate at a favorable price before the share moves dramatically. Traders with a longer-term horizon may consider accumulating at any price between RM2.85 to RM2.93 with the immediate support at RM2.87/ RM2.85. Traders who are more risk-averse, on the other hand, may choose to participate only when the share price manages to break above the major resistance of RM2.93. This is, of course, safer but the margin would be smaller.

Moving on, there are a few events that could jeopardize our trading plan despite the bullishness and thus require our attention. (1) Because of the high beta of oil and gas companies, Skpetro’s share price is expected to plunge more than our index should it dips on the parliamentary dissolution announcement (2) Crude oil price has been on a downtrend since two weeks ago and if it continues to drop drastically in the near term to below USD90/ USD88, a possible revision of the perceived value of this company (because Skpetro’s main source of revenue – charter rate – is dependable on crude oil price) by the market participants may temporary send the price down. (3) EPF had disposed a net 21.5million shares since 17th of January, indicating a possible lack of interest, at least in the near term. If EPF continues its selling spree, the price may not be able to break above the RM2.93 resistance and may even move lower to the next support levels.

Do trade cautiously if you are planning to participate in this share ;)

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