Sapura Energy reported that it has secured five contracts including two extensions for its drilling and Engineering and Construction (E&C) segment in Malaysia and Angola with a combined value of RM760m. These contract wins are certainly positive to the Group as it helps to increase the groups’ rig and fabrication yard utilization, ensuring earnings visibility for the next two years. Inclusive of these contracts, we estimate that the Group has secured a total of RM9.3bn worth of new contracts in this financial year, pushing its balance orderbook in hand to c. RM19.4bn, which will keep them busy over the next three years. We make no adjustment to our estimates as we see this as part of FY20 orderbook replenishment. Our Outperform call with an unchanged sum-of-parts TP of RM0.46 is retained as we believe that the Group is currently on track towards improving its financial health, putting it in a position of growth.

• The contracts comprise of i) 3 drilling contracts including 2 extensions in Angola and Malaysia for Chevron Corporation, Sabah and Sarawak Shell, as well as Petronas Carigali, and ii) 2 E&C contracts in Malaysia for Petronas Floating LNG 1 (L) Ltd and Hess Exploration and Production Malaysia B.V. Details of the projects are in Table 1. There are no values provided for each contract, though the combined values for all 5 contracts are expected to be around RM760m with completion of up to 2QFY22.

• Strong jobs win – highest in 3 years. Inclusive of these contracts, we estimate the Group has successfully secured a total of RM9.3bn worth of contracts in this financial year, pushing its balance order book in hand to RM19.4bn – surpassing FY17 and FY18 year-end balance orderbook. This is undoubtedly positive for the Group as it will keep them busy over the next three years. The Group’s tender book remains strong, growing from USD2.5bn in FY17 to USD8.8bn at present with additional prospects of USD14.3bn for this calendar year, testament to the fact that global oil and gas activities have been growing.

• Earnings forecast. We keep our estimates unchanged as we see this as part of FY20 orderbook replenishment. We reckon these contracts could fetch varied profit margins from high single digit to mid-teen ranges at EBIT level.

Source: PublicInvest Research - 8 Jan 2019