Investment Highlights

• We maintain our BUY recommendation on Sapura Energy (Sapura) with unchanged forecasts and fair value of RM0.29/share, pegged to a 50% discount to its FY21F book value. This valuation reflects a neutral ESG rating of 3 stars.

• As we have highlighted previously, Datuk Mohd Anuar Taib has been redesignated as the group CEO effective today with the retirement of Sapura’s founder Tan Sri Shahril Shamsuddin at the age of 60.

• We are positive on Anuar, aged 53, taking over as the CEO. He comes with a commendable track record of helming as the Petronas Carigali’s CEO before heading Petronas’ upstream division as the executive vice president.

• Anuar began his career in 1990 at Sarawak Shell and progressively attained the position of chairman of Shell Companies in Malaysia from 2010 to 2012 and Petronas Gas from 2010 to 2019. He was the chief operating officer and CEO designate of Sapura over a 6-month transition period from 1 October 2020 until 22 March 2021.

• Anuar joined the oil and gas industry after completing his B.Sc. Engineering from the United States, with the Royal Dutch Shell subsidiary in Malaysia, Sarawak Shell Bhd. He also graduated with an MBA in International Management from the RMIT University, Australia in 2004.

• We view the transition as positive against the backdrop of the ongoing corruption probe by Brazilian and Dutch authorities into the award of 3 pipe-laying support vessel charters to Sapura-Seadrill joint venture back in 2011. Together with the oversight of Permodalan Nasional, which has a 40% stake in the group, this reaffirms our 3-star ESG evaluation for Sapura.

• Meanwhile, the group is expected to secure the engineering, procurement, construction and installation contract for the central processing platform (CPP) for SapuraOMV Upstream Sdn Bhd’s Jerun field development in offshore Sarawak. 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 RM1bil.

• 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, not including even larger prospective projects worth RM68bil amid the brightening outlook in 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 amid more optimistic crude oil prices, the stock currently trades at an undeserved fire-sale 0.2x PBV.

Source: AmInvest Research - 23 Mar 2021