Investment Highlights

• We maintain our BUY call on Sapura Energy (Sapura) with unchanged forecasts and fair value of RM0.55/share, based on a 25% discount to our estimated diluted book value of RM0.72/share, assuming completion of the proposed rights issue of up to RM4bil.

• Sapura’s improving order book prospects are accentuated further with the new award of contracts worth RM1.75bil, which have been announced today as follows:
  • Engineering, procurement, construction, transportation and installation of a central wellhead platform called the Hokchi Central Platform connected to a satellite platform in the Hokchi field development at the depth of 40 metres in the Gulf of Mexico for Hokchi Energy S.A. de C.V. The works are expected to be completed by 1Q2020;
  • Engineering, transport, construction, installation and precommissioning of sealine and onshore pipeline and fiber optic cable and the transportation and installation of the Mizton wellhead platform in the Gulf of Mexico with a maximum water depth of 40 metres for ENI Mexico S. de. R.L de. C.V. The works are expected to be completed by the end of 2Q2019;
  • Provision of Pan Malaysia Underwater Services Contract under Package C for: i) Sarawak Shell Bhd/Sabah Shell Petroleum Company Ltd; ii) Murphy Sarawak Oil Co. Ltd/Murphy Sabah Oil Co. Ltd; iii) Repsol Oil & Gas Malaysia Ltd; and iv) Kebabangan Petroleum Operating Company Sdn Bhd.
    The scope of work includes the utilisation of vessels, air and saturation diving, and remotely operated vehicles. It also covers inspection, maintenance and repair works to support the production arrangement contractors’ underwater facilities located at the offshore waters of East Coast Malaysia over a period of 5 years on a call-out basis. The value of the contract is dependent on each work order, with the contract period to be concluded by 3Q2023.
• Based on the awards to date for FY19F, we estimate that these contracts substantively raise Sapura's fresh orders by 33% to RM7.1bil. While this represents 18% above our FY19F new order book assumption of RM6bil, we maintain our forecasts for now as the underwater services contract will be spread out over 5 years on an uncertain called-out regime.

• Sapura's improved balance sheet from its rights and sale of a 50% equity stake in its upstream business to OMV frees up working capital to support the rising momentum of EPCIC jobs, which are underpinned by the massive orders already secured with additional intake expected from tenders valued at US$7.4bil (RM31bil) and potential prospects worth 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 - 21 Nov 2018