Investment Highlights

• We maintain our BUY recommendation on Sapura Energy (Sapura) given the attractive upside potential to our unchanged fair value of RM1.00, based on a 50% discount to FY19F book value.

• Sapura has secured 5 contracts worth RM905mil comprising:

• Engineering, procurement, construction and commissioning (EPCC) services for the Petronas Carigali’s Kinarut ERB WEST compressor upgrading project. This involves the removal of existing HP compressors and reinstallation of refurbished LP compressors at EWDP-A, refurbishment of reinjection compressors to HP compressors at offshore at EWG-A, replacement of compressors, piping and instrumentation, and process and utility tie-ins modifications at ERB WEST platforms and Kinarut platforms over 3 years, expiring in 4Q2020.

• Minor EPCC for Petronas Carigali’s Bokor Betty Brownfield & Rejuvenation project, involving host tie-in works at existing platforms including LADR-A and BNG-B, and Betty rejuvenation and redevelopment works for existing platform facilities over 4.5 years, expiring in 2Q2022.

• EPCC plus installation services for Hess Exploration and Production Malaysia B.V’s FFD Phase 2 facilities in the North Malay Basin for a conventional 3-legged terminal wellhead platform and a minimal wellhead platform with associated pipelines, to be completed by 2Q2020. There is an option for offshore transportation and installation (T&I) work as well.

• T&I services for Malaysia Marine and Heavy Engineering’s Bokor central processing platform project to transport and install jackets, piles, bridges and appurtenances. The works are expected to be completed by March 2020.

• Offshore/onshore pipeline and terminal works for Mumbai Port Trust’s Fifth Oil Berth Project comprising the installation of a 42-inch diameter submarine pipeline with a 5-inch diameter composite cable between onshore terminal at Pir Pau in the mainland of Mumbai, India to the terminal at Jawahar Dweep. The works, which also include trenching, burial and on-shore civil services, are expected to be completed by May 2019.

• Sapura’s last major award announcement was for multiple contracts worth RM1.5bil in 15 November last year, while FY18 contract awards had totalled up to RM3.7bil vs our assumption of RM6bil. Assuming a revenue of RM1.3bil for 4QFY18, we estimate that this fresh contracts could lead to a slight 3% QoQ decline in the group’s outstanding order book to RM14.7bil from RM15.1bil as at 3QFY18.

• Even though the pace of offshore projects remains tepid globally, the group’s order book still translates to 2.2x FY19F revenue with management hopeful of further wins from tender prospects worth up to US$9.5bil. The stock currently trades at an attractive 0.3x FY18F book value vs. 0.9x for Bumi Armada and 0.5x for MMHE.

Source: AmInvest Research - 6 Feb 2018