- 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 US$40mil (RM127mil) charter for its tender assist rig SKD T-9 from PTTEP International Limited for its Zawtika development drilling campaign offshore Myanmar. The T-9 contract, which will commence in July 2013, covers 300 operational working days.

- The T-9 rig, which was built in 2004 and is able to work at water depths of up to 6,000 feet, had serviced Petronas Carigali at a charter rate of US$132/day until last month. Hence, the new charter of US$133k/dayfrom PTTEP is slightly higher than its previous client.

- The group is also looking to renew charters for 6 more rigs which are set to expire at later stages this year - T-3, T-4, T-6, T-7, T-10 and T-11. We expect SapuraKencana to secure charters with rates that are comparable to prevailing ones as demand for this rig segment remains firm.

- With the recent arrival of the tender rig T-17, built in Cosco Shipyard in Nantong, China, the group’s current fleet has grown to 21 tender rigs. This comprises of 13 tender barges and 8 semi-tender barges, and represents 45% of the global tender rig supply of 47.

- This new charter has a negligible impact on the group’s order book of RM26.5bil - 3.5x FY14F revenue. Since the beginning of the year, the group has secured RM9.9bil of new orders, of which the largest was the US$2.7bil (RM8.6bil) charter for 3 new flexible pipelaying support vessels from Petrobras.

- 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) job – one of 10 CPPs which are expected to be tendered out over the next 1-2 years.

- As highlighted earlier, the group is actively looking to tender for some of the large production blocks of US-based Newfield Exploration Co, which has indicated its intention to dispose its non-US based assets, reportedly valued at US$1.7bil (RM5.4bil). If successful, the job would further integrate and add value to SapuraKencana’s upstream operations as it become a 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