Investment Highlights

• We maintain our BUY call on Sapura Energy (Sapura) with an unchanged fair value of RM0.50/share, based on a 40% discount to its book value of RM0.87/share.

• Sapura has secured 5 separate contracts worth RM1.3bil as follows: i) Charter extension from Petronas Carigali Sdn Bhd for semi tender assisted drilling rig Sapura Berani to drill 9 wells at Sumandak, Erb West and Dulang facilities, which are offshore Sabah and offshore Peninsular Malaysia. This is expected to be completed by 4Q2019; ii) 3-year charter for tender assist drilling rig Sapura T-9 from Exxonmobil Exploration and Production Malaysia Inc, commencing early 3QFY20 at Tabu field, offshore Peninsular Malaysia; iii)Installation of 6 subsea pipelines over 57km in various locations in the Morgan field at Gulf of Suez from the main contractor, Pan Marine Petroleum Services Company for the Gulf of Suez Petroleum Company, a joint venture between BP plc and The Egyptian General Petroleum Company. This will be carried out over 10 months with completion by 2QFY20. iv)Provision of engineering, procurement, construction and installation of pipeline, ILT, PLETs & pre-commissioning activities from ENI East Sepinggan Limited, with completion by FY20F. This involves 2 16” diameter offshore rigid pipelines covering 95km from the current Jangkrik facility to a future manifold near Merakes drilling centres in water depths between 70 and 1400 metres. The job scope includes design, fabrication and offshore installation of foreseen structures, 2 deepwater pipeline end terminations and 1 in-line tee. v) Submarine rescue services by Phoenix International Australia Pty Ltd for The Royal Australian Navy which involve designing and fabricating a remotely operated vehicle, the external propulsion and non-life support electrical and control systems together with the submarine rescue bell. The system, expected to be operable in 2022, is to deliver rescue capability to The Royal Australian Navy’s submarine fleet.

• These new contracts for FY20F are in line and account for 19% of our new order assumption of RM8bil, which remains conservative vs. RM9.3bil of new jobs secured n FY19. Hence, we maintain FY20F–FY22F earnings.

• We expect these new jobs to add 8% to Sapura’s outstanding order book to RM18.5bil – 3.4x FY20F revenue. This is expected to grow as the group’s tenders have escalated 3.5x YoY to US$11bil, driven by new markets in the Middle East and Africa which now accounts for 56% of the bid book.

• The stock currently trades at a low FY21F PE of 14x and PBV of 0.4x currently.

Source: AmInvest Research - 15 Apr 2019