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 wholly-owned Sapura Fabrication S/B and Sapura Saudi Arabia have been selected for Saudi Aramco’s long-term agreement (LTA) programme to provide engineering, procurement, fabrication, transportation and installation (EPCI) for a period of 6 years with extension options.

• Sapura is among the 4 new entrants into Aramco's LTA programme, which also include China’s Offshore Oil Engineering (COOEC), a consortium comprising UK-based Lamprell Energy/ Netherlands-based Boskalis/TechnipFMC and Malaysia Marine & Heavy Engineering Holdings (MMHE).

• Aramco’s 5 existing preferred LTA contractors are McDermott International, US-based Dynamic Industries, Saipem, a JV of India’s Larsen & Toubro with Oslo-listed Subsea 7, which acquired Emas Chiyoda’s business last year in Saudi Arabia, and Abu Dhabi’s National Petroleum Construction Company (NPCC). Currently, they are bidding for 5 large Aramco offshore contracts, including a major package for its Berri incremental offshore development that is expected to be worth over US$1bil alone.

• Aramco’s In-Kingdom Total Value Add (IKTVA) programme is based on its long-term strategic Vision 2030 to reduce Saudi Arabia’s dependence on oil and diversify its economy. The programme requires suppliers and service players operating in the kingdom to attain 70% local content by 2021, with service providers exporting 30% of local energy goods and services output. Hence, Sapura will be partnering with local businesses to leverage its project management and fabrication capability together with its construction vessels.

• Meanwhile, Saudi Aramco has launched a tender for a fresh development phase at its giant Safaniya oilfield that could involve 6 new offshore platforms costing above US$500mil, with technical and commercial bids to be submitted on 2 December.

• The Marjan development is the largest project being taken up by Aramco this year, involving the expansion of the existing gas and oil separation plant at Tanjib and setting up a new onshore gas plant, 260km north of Dhahran. Huge packages are being offered to both onshore and offshore players with the entire scope of work estimated to be worth upwards of US$12bil. Saudi Aramco has signed deals worth US$28bil with international suppliers and service providers during its recent IKTVA event in Dammam.

• Besides this positive news, Sapura’s order book prospects were also improving with the recent award of contracts worth RM1.75bil, raising its FY19F new orders to date to RM7.1bil, already above our RM6bil assumption. This is likely to gain further traction with tenders valued at US$7.4bil (RM31bil) and potential prospects worth US$10.2bil (RM42bil). The stock currently trades at half its ex-PBV of 0.5x for a group with a rising order growth momentum.

Source: AmInvest Research - 28 Nov 2018