Investment Highlights

• We maintain our HOLD recommendation on Sapura Energy (Sapura) with unchanged forecasts and fair value of RM1.72, based on a 20% discount to book value.

• Our forecasts are maintained even though Sapura has secured RM1.5bil contracts comprising the provision of:

• The 2018 Pan Malaysia transportation & installation services on a lump sum basis for Petronas Carigali and Sarawak Shell Bhd involving transporting and installing offshore facilities, which include platform, structures and pipelines.

• Maintenance, construction and modification (MCM) services (Package A – Offshore) – Sarawak Gas for Petronas Carigali to undertake topside structural maintenance, hook up and commissioning and a facilities improvement programme on a call-out basis for 5 primary years until September 2022 with a 1-year extension option.

• Hook-up, commissioning and offshore construction services for Repsol Oil & Gas Malaysia Ltd involving onshore preparation and handling, onshore pre-fabrication works, offshore installation and hook-up, inspection, testing and pre-commissioning of structural members and supports, piping, instrument and electrical equipment on existing and new production and processing platforms and facilities. This is on a call-out basis for 2 years until September 2019 with a 1-year extension option.

• Mechanical works for a flexi high-density polyethylene (HDPE) plant for TecnimontHQC S/B’s Rapid Project – Unit 3215, expected to be completed by March 2019.

• Engineering, procurement and construction services for a pipeline for UTE Porto de Sergipe’s 1 combined cycle power plant, transportation and installation of an FSRU’s mooring system and hook-up of the FSRU/riser/umbilical system by Centrais Elétricas de Sergipe S.A. in Brazil, with completion by 31 December 2018.

• These awards are a relief as Sapura did not secure any significant contract in 3Q2017. While these have doubled the group’s awards to RM2.8bil for FY18F to date and increased its outstanding order book by 19% to RM17.9bil, we note that these contract replacements represent only 42% of Sapura’s FY17 revenue and half of our FY18F order book assumption.

• In 2QFY18, 6 rigs were in operation compared to 10 stacked rigs, translating to a utilisation rate of only 40% in a fleet of 15. As the tender rig T-12 will be dropping out of Chevron’s contract next quarter, the group’s rig utilisation will fall further to 33%. This portends weaker bottom lines from 3QFY18 onwards vs. a RM85mil drilling loss in 2QFY18.

• The stock currently trades at a pricey FY19F PE of 37x but this is cushioned by its 35% discount to book value of RM2.15/share.

Source: AmInvest Research - 16 Nov 2017