- We maintain our BUY recommendation on SapuraKencana Petroleum (SapuraKencana), with an unchanged fair value of RM5.70/share, based on an FY15 PE of 22x, which is the 2007 peak achieved by Kencana Petroleum. Our FY15F-FY17F earnings, which has already accounted for new contract replenishments, are unchanged.

- The group has announced 5 major contract awards worth US$312mil (RM1bil) as follow:-

i) Charter worth US$90mil for the recently completed tender assisted drilling rig ‘SKD T-20’ (renamed from KM-2) by CNR International (Cote d’Ivoire) SARL to be employed in the Espoir field in Block CI-26 off Ivory Coast in West Africa. It is to drill 10 wells within a year, with an option for 4 additional single wells. Including mobilisation costs, the SKD T-20 daily charter rate of US$246k compares favourably with the US$225k daily charter, secured in April this year, for SKD Setia tender rig in Angola, also in West Africa.

ii) Charter worth US$11mil from Heerema Marine Contractors Nederland (HMC) for the group’s wholly-owned derrick lay vessel SK1200, which was built by Cosco Shipyard in China in March this year. This contract, which is for a firm 55 days plus an option for 15 daily extensions, is for the transportation of Exxon’s Temporary Living Quarters in the Arkutun-Dagi project in Sakhalin, Russia, which Exxon Neftegas Ltd had earlier awarded to HMC.

iii) Transport and installation (T&I) contract worth US$59mil from Larsen & Toubro Ltd involving the British Gas Exploration & Production India Limited Mukta B Platform and Pipeline Project. This involve the T&I of jacket, topside and pipelines, tie-ins, engineering, procurement and provision of riser clamps for existing platforms, precommissioning and project management.

iv) Subsea contract worth US$100mil for the group’s 50%-owned SapuraAcergy Sdn Bhd (Subsea 7 owns the balance equity stake) for the Maharaja Lela South Project by TOTAL E&P Borneo B.V. This comprises engineering, procurement, supply, construction, pre-commissioning, T&I for offshore platform and pipeline works.

v) 2-year fabrication contract to build a well-head platform for the Layang Development (Facilities) Project by JX Nippon Oil & Gas Exploration (Malaysia) Limited, with completion in 2Q2016.

- These new contracts reaffirm our positive outlook on SapuraKencana’s prospects, which is further supported by the group’s game-changing US$898mil (RM2.8bil) acquisition of Newfield International’s oil & gas production blocks in Peninsula Malaysia, Sabah and Sarawak. The stock currently trades at an attractive FY15F PE of 17x - a 41% discount to SapuraCrest Petroleum’s peak of 29x in 2007.

Source: AmeSecurities