Falcon Energy

Falcon Energy’s 2Q10 net profit increased by 8.3% yoy to US$8.1m on the back of 5.2% growth in revenue. Even after taking into account the seasonality effect, the results were still slightly below our expectations with 1H10 earnings forming only 38.4% of our original full year forecasts.Key variance was the decline in revenue from Oilfield Division (-36.7% yoy) with the expiry of a one-off contract in 2Q10 as well as lower turnover from the Mexican subsidiary.

We trimmed our FY10-12 EPS estimates marginally by 3-5% to factor in slower-than-expected recovery in charter dayrates and weaker USD. In line with the de-rating of O&M sector, we are now pegging our target price at lower FY11F PER of 10x. Recently, CEO Tan Pong Tyea has bought 46.2m shares at $0.53 to increase his stake in FEG to 62.2% through private treaty and open market purchase. FEG has declared an interim dividend of S$0.005 per share. Maintain BUY with a reduced TP of $0.85.