- Malaysia’s 13 General Election yesterday, which saw the continuation of a Barisan Nasional-led federal government, is likely to result in a faster pick-up in momentum for the rollout of projects in Malaysia, which has seen a lull in the past two months. The projects that have been delayed are the RM8bil-RM10bil Pan-Malaysian hook-up, construction and commission (HUCC) umbrella contract as well as several massive fabrication contracts for central processing platforms off Terengganu and East Malaysia.

- There was also concern that past contracts which had been awarded to politically-linked stocks like SapuraKencana Petroleum, whose substantial shareholders include former Prime Minister Tun Mahathir Mohamad’s son Mokhzani, could be opened for review. Being the largest domestic service provider in terms of asset size and order book, a deferral in the award of new Malaysiacentric projects could significantly cloud its near-term earnings prospects given that its Petrobras contracts are expected to generate revenue post-FY14F. Nevertheless, we expect the addition of Seadrill’s tender rig contracts to drive SapuraKencana’s earnings growth this year.

- Recall that the HUCC had been delayed by Petroliam Nasional (Petronas) due to the review process for the number of strong bids from local oil & gas players. The award of the HUCC contracts, which were earlier expected in 4QFY12 and subsequently postponed to 1QFY13, now appears to be delayed longer. The front-runners of the contract and in the short-list after meeting the pre-conditions of the tender are Dayang Enterprise Holdings and Petra Energy.

- But other companies which have made compelling bids include SapuraKencana Petroleum’s Sarku Resources, Shapadu Corp, TH Heavy Engineering (formerly Ramunia Holdings), Perisai Petroleum Teknologi-Ezra Holdings Ltd, Coral Alliance, PFC Engineering-Jasa Merin (M) S/B and Alam Maritim Resources. In our view, the surprise beneficiary from the HUCC contract could be Alam Maritim Resources, which is new to this field of business compared to the incumbent operators, Dayang and Petra Energy. For SapuraKencana, this contract could be relatively less significant given the scale of its already huge order book of RM18bil, which includes the acquisition of Seadrill’s tender rigs.

- The rollout of the HUCC contracts is critical for the continuation of the excitement in the oil & gas sector, given that fabrication contracts domestically had slowed down due to the complexities of the new projects underway. While we still expect the award of the Semarang CPP engineering, procurement, construction and commissioning contract in June this year to SapuraKencana, the rollout of the second phase of the North Malay basin gas cluster project, which will involve a large CPP at the Bergading field and multiple satellite well-head platforms, could be deferred towards the end of 2013.

- Nevertheless, the newsflow momentum will be further supported by contract awards emanating from the RM60bil RAPID project in Pengerang and tank terminal projects in Southern Johor, together with the massive gas cluster projects off Sabah and Sarawak, which are tied in to the completion of the Bintulu LNG complex expansion in 2015. In view of the multiple flows of contracts this year, we maintain our OVERWEIGHT call on the sector with BUY calls for SapuraKencana Petroleum, Bumi Armada, Dialog Group and Alam Maritim.

Source: AmeSecurities