-  We maintain our BUY recommendation on SapuraKencana Petroleum (SapuraKencana), with an unchanged fair value of RM4.65/share – based on an FY15 PE of 22x, which is the 2007 peak achieved by Kencana Petroleum.

-  SapuraKencana has secured a US$181mil (RM576mil) contract from Trans Thai-Malaysia (Malaysia) Sdn Bhd to provide engineering, procurement, construction, installation and commissioning (EPCIC) works for the JDA Gas Balancing Evacuation Project. This 3-year contract is expected to commence in 2QCY13 and to be completed by 1QCY16.

-  Since the beginning of the year, the group has secured RM9.8bil of new orders, of which the largest was the US$2.7bil (RM8.6bil) charter for 3 new flexible pipelaying support vessels from Petrobras. Last month alone, the group’s new order intake was RM9.3bil.

-  But we note that the new charter order from Petrobras would only commence contributions in FY17F upon completion of the new pipelay vessels. Excluding this contract, the group’s fresh orders amounted to RM1.2bil, vs. our FY14F-FY16F new order assumptions of RM7bil-RM9bil.

-  This new job raises the group’s order book by 3% to estimated RM26.5bil or 3.5x FY14F revenue. The group’s order book remains the largest in the O&G sector and is double its nearest peer Bumi Armada, which has outstanding charters/contracts valued at RM12bil.

-  We maintain SapuraKencana’s FY14F-FY6F earnings on expectation that the group will continue to secure fresh new jobs over the next few months, including the over RM1bil Semarang central processing platform (CPPs) – one of 10 CPPs which are expected to be tendered out over the next 1-2 years.

-  As highlighted in our past report, the group is actively looking at tendering for some of the large production blocks of USbased Newfield Exploration Co, which has indicated its intention to dispose its non-US based assets, reportedly valued at US$1.7bil (RM5.4bil). The bid submission is set on 16 July this year. If successful, the job would further integrate and value-add to SapuraKencana’s upstream operations to become an even more exciting and formidable player in the sector.

-  SapuraKencana remains our top pick for the oil & gas industry. Valuation remains attractive at the current FY15F PE of 19x, which is at a 13% discount to Kencana Petroleum’s peak in 2007.

Source: AmeSecurities