Investment Highlights

• We maintain our BUY recommendation on Sapura Energy (Sapura) with an unchanged fair value of RM0.29/share, pegged to a 50% discount to the group’s FY21F book value.
• Upstream reported that Sapura Energy is expected to secure the engineering, procurement, construction and installation (EPCIC) contract for the central processing platform (CPP) for SapuraOMV Upstream Sdn Bhd’s Jerun field development in offshore Sarawak, East Malaysia.
• The only 2 bidders for the Jerun CPP were Sapura and Malaysia Marine & Heavy Engineering (MMHE). Even though the report indicated that the decision is likely to be made based on Sapura’s bid instead of its ties to the operator, MMHE’s commercial bid was lower. Hence, Upstream said that MMHE is still hopeful of securing the contract, which is expected to be formally awarded by the end of the month.
• We estimate that the contract value for a CPP weighing 22,000 tonnes, plus 5,300 tonnes of piles and an 8,500-tonne compression platform, could easily be worth over US$1bil.
• Partners in the Block SK 408 production sharing contract are operator SapuraOMV (40%), Petronas Carigali (30%) and Shell (30%). OMV, the Austrian energy giant with a 50% shareholding in SapuraOMV, had earlier indicated that Jerun field is due to come onstream in 2024.
• The Jerun field, together with the Jeremin, Teja and Legundi satellite discoveries, form phase two of the Block SK 408 development.
• Water depths at the offshore block, which is located 130km northwest of Miri, Sarawak, range from 80 to 90 metres. The Jerun development will have six wells with total production of around 600 million cubic feet per day of gas.
• We estimate that securing this project alone could boost Sapura’s outstanding order book of RM12.5bil by 32%, reversing its declining sequential trend over the past 2 quarters.
• As highlighted in our Sector Update on 4 January 2021, Petronas’ Activity Outlook for 2021–2023 expects 8 greenfield and 30 brownfield field development projects to be sanctioned over the next 36 months.
• For this year alone, domestic bids could be opened for another CPP in excess of 7,500 tonnes, 5 wellhead platforms weighing between 1,000 and 7,500 tonnes and one “light” wellhead platform below 1,000 tonnes.
• This underpins our view that Sapura’s order book momentum is set for a transformative turnaround with the group bidding for a massive RM38.8bil (+32% QoQ) of new jobs besides even larger prospective projects worth RM68bil amid the brightening outlook in an upstream capex upcycle.
• Against the backdrop of improving prospects of new jobs across the globe and underpinned by a soon-to-be revitalised RM10bil debt structure by the end of this month, the stock currently trades at an undeserved firesale 0.2x PBV.

Source: AmInvest Research - 8 Jan 2021