SAPE secured nine contracts worth RM1.8b across Malaysia and international projects. In contrast to previous contract announcements, SAPE’s latest announcement showed that it had managed to replenish rig contracts, a positive surprise that is better than guidance. By 2HFY19, rig utilisation will improve to 6 working rigs out of 15 rigs. With the rigs recovery, major earnings downside is effectively removed. We see further upgrade bias to forecasts and target price if more contract wins ensue. Upgrade to BUY with a target price of RM0.70.

WHAT’S NEW

• Awarded nine contracts worth RM1.8b. Yesterday, Sapura Energy Bhd (SAPE) announced that it has secured nine new contracts valued worth RM1.8b. This brings its total ytd contracts win to RM4.5b. The contract wins are quite diverse unlike previous contract wins, covering Engineering and Construction (E&C) and drilling segments and well-balanced between Malaysian and international contracts. We note that many of SAPE’s previous contract announcements were related to only E&C projects.
• Two Malaysia E&C contracts. The group secured Engineering, Procurement and Construction (EPC) contracts for the SK408E Gorek wellhead platform and the F6 Brownfield Integrated Module (F6 BIM) project for Sarawak Shell. The works are expected to be completed by 3Q19 (3QFY20). Also, SAPE is carrying out EPC for its own SK408 Larak and Bakong wellhead platforms (Package B and Package C). SAPE expects works to be completed by 2Q19 (2QFY20).
• Five international E&C contracts. SAPE secured three contracts in India, namely: a) subsea well and pipeline replacement (Project V) for Oil and Natural Gas Corporation Limited (ONGC) (to be completed by 4Q19), b) supply of equipment and modification of berths at the Jamnagar marine terminals in Gujarat for Sikka Ports (to be completed by 1Q20), and c) construction of Berth A2 and Berth D for the above ports for the same client (to be completed by 2Q20). In Mexico, SAPE secured Engineering, Procurement, Construction, Installation and Pre-commissioning (EPCIC) contracts, involving a 20km gas oil pipeline from the PP-Ayatsil-B platform to the E-KU-A1 platform (Ayatsil Line 16) to be installed in the Gulf of Mexico for PEMEX (to be completed by 1Q19). In Australia, SAPE secured Riserless Lightwell Intervention Services (RLWI) for the Montara subsea wells from PTTEP Australasia. SAPE’s DP2 construction vessel Sapura Constructor will be utilised for the job, which is expected to be completed by 4Q18. All in all, these continue to demonstrate SAPE’s proven track record as a leading international O&G contractor, which does not overly depend on Petronas local jobs.

Source: UOB Kay Hian Research - 22 Jun 2018