Investment Highlights

• We reiterate our BUY recommendation on Sapura Energy (Sapura) with an unchanged 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.

• Our forecasts, which are higher than consensus, are maintained as Sapura’s new contracts worth RM1.2bil to provide engineering & construction (E&C), operations & maintenance (O&M) and drilling services are in line with its FY22F fresh order book assumption of RM6bil. The new contracts are as follows:
   
  • Transportation & installation, engineering, survey, interfacing, topside installation and handover and removal of temporary structures over 8 months from February 2021 for PTTEP Sarawak Oil Ltd’s Pemanis Wellhead Platform Topside under the Pan Malaysia Transportation and Installation of Offshore Facilities 2021 Campaign.
     
  • Engineering, transportation, supply of materials, prefabrication scopes, installation (including installation of risers, clamps, guards and subsea tie-ins) and precommissioning of pipelines on a call-off basis to replace EnQuest Petroleum Production Malaysia’s 10” Seligi-AC to Seligi-B gas-lift subsea pipeline and risers over 5 months with completion by this year under the Pan Malaysia Transportation and Installation of Offshore Facilities programme.
     
  • Project management, fabrication, offshore maintenance, construction and modification work including tools, equipment, material and consumables over 1 year from March 2021 for EnQuest’s PM8 and Seligi fields, under the PM8 extension production sharing contract which is a farm-in arrangement from ExxonMobil E&P.
     
  • Topside major maintenance works for Shell’s Package B projects located off Sabah and Sarawak from 29 April 2021 until 19 August 2023.
     
  • Charter for tender assist drilling rigs on a call-out out basis over 2 years from 26 April 2021 to 25 April 2023, with an option to extend another 2 years for any tender-assist drilling rigs or tender barges based on Petronas Carigali's requirement.
     
  • Integrated rig, drilling and completion services by Sapura Esperanza semi-submersible tender-assist drilling rig commencing 3Q2021 for Petronas Carigali's 6 wells.
     
  • Charter for tender assist drilling rig Sapura T-17 by PTTEP Energy Development Company Ltd over 3 years, commencing from 15 October to 15 November 2021, with extension options of up to 12 months. Another tender-assist rig Sapura T-18 secured a 4-month contract extension from PTTEP. This raises the number of rigs utilised to 8 in 3QFY22 from 7 in 1QFY22.
     
• We estimate that the group’s outstanding order book could increase by 10% to RM13bil, which may rise further from the group’s bids of RM53bil currently – 4.1x its current order book. Additionally, the group is looking for prospective projects worth up to RM93bil.

• Recall that Sapura’s 1QFY22 normalised loss of RM49mil (excluding RM48mil one-off items for unamortised borrowing costs and de-designation of hedging instruments) could have turned around to a net profit of RM35mil with the removal of forex losses of RM43mil and Covid-19-related costs of RM42mil from quarantine, tests and productivity losses. Additionally, all 4 core operations were profitable in 1QFY22 with the drilling division rebounding to a pretax profit of RM22mil with only 7 rigs in operation.

• Against the backdrop of improving prospects for new jobs across the globe, better cost structure and underpinned by a revitalised RM10bil debt structure amid more optimistic crude oil prices, the stock currently trades at an undeserved fire-sale 0.2x PBV for an integrated oil & gas operator with an established regional footprint and proven delivery record.

Source: AmInvest Research - 22 Jul 2021