Investment Highlights

• We maintain our BUY call on Sapura Energy (Sapura) with an unchanged fair value of RM0.55/share, based on a 25% discount to our estimated diluted book value of RM0.73/share, assuming ex-proposed rights issue of up to RM4bil. Our revised fair value currently implies a 24% discount to our ex-SOP.

• Sapura’s FY19F-FY21F earnings are maintained as the RM815mil fresh contracts, which were announced last evening, are in line with our FY19F new order book assumption of RM6.5bil. Including the RM4.5bil fresh charters in 1QFY19, Sapura has secured RM5.3bil this year, which account for 82% of our FY19F assumption.

• The 4 new contracts are:

• Pan Malaysia maintenance, construction and modification contract from ExxonMobil Exploration and Production Malaysia Inc for a 5-year primary contract which will expire in July 2023, with a 1-year extension option. This call-out contract involves work orders based on contracted rates for procurement, onshore pre-fabrication works, offshore maintenance, construction and modification works for topside maintenance, workover preparation and facilities improvement projects in Peninsular Malaysia.

• Offshore installation works for East Spar intelligent pigging and removal project in Australia for Quadrant Energy, scheduled for completion by 4QFY19. The scope of work, which includes the charter of DP2 Subsea Construction & Saturation Diving Vessel called Sapura Constructor, involves the intelligent pigging of the East Spar subsea pipeline from East Spar pipeline end manifold to the onshore processing facilities in Varanus Island, off Western Australia. It also includes the recovery of all subsea infrastructures from 3 subsea wells consisting of subsea heat exchangers, tie-in spools, flexible flowlines and control umbilicals for dismantling and disposal.

• Subcontract from Saidel Limited to provide offshore engineering and construction of a 16” Southern SWAMP sales gas evacuation pipeline project by 4QFY19 in the Delta region of Nigeria operated by Shell. The scope of work comprises 16” x 18.4km pipeline from onshore to EA Riser Platform - A including a 1.62km beach pull, 3 sections tie-in spool at EA Riser Platform - A and two concrete mattress installations.

• Charter extension for the Semi-Submersible Tender Assist Drilling Rig “Sapura Pelaut” by Brunei Shell Petroleum for 1 year commencing 1QFY20 with a 1-year extension option.

• These new orders are expected given that the group is tendering for US$7.4bil (RM30bil) with further addressable prospects of US$10.2bil (RM42bil).

• The stock currently trades at a low ex-PBV of 0.6x currently vs. 0.8x for Bumi Armada.

Source: AmInvest Research - 25 Sept 2018