We maintain our BUY recommendation on SapuraKencana Petroleum, with an unchanged fair value of RM5.70/share, based on an FY15 PE of 25x. Our FY15FFY17F earnings, which have already accounted for new contract replenishments, are unchanged.

The group has announced the award of three new rig charters and an extension of an existing rig contract worth US$700mil (RM2.3bil) based on the firm period. These charters involve Petronas Carigali chartering two tender assisted rigs – SKD T- 9 for 5 years with an option for two years, and SKD T-10 for three years with a 2-year option. SKD T-9 charter will commence from July 2014 to June 2019 while SKD T-10 will begin from August 2014 to July 2017.

Chevron Thailand Exploration And Production Limited also chartered SKD T-18 for five firm years effective from June 2014 to May 2019 for its drilling campaign in Thailand. BP Trinidad & Tobago LLC extended its charter for SapuraKencana’s tender assist drilling rig SKD Jaya, formerly under Seadrill, for another year from August 2014 to July 2015 offshore Trinidad & Tobago.

The announcement did not provide a breakdown of the four contract values due to the customers’ request for confidentiality. But we understand that the daily rig rates are flat to a 5% increase from the current existing charters. YTD, the group has secured nine new or extension charters worth up to US$1,244mil.

These new contracts reaffirm our earnings expectations (+26% for FY15F) for the group. Excluding one-off exceptional gains of over RM200mil for the pre-acquisition profits for Newfield International’s oil & gas production blocks, we expect the group’s 1QFY15 results, which are scheduled to be announced on 19 June 2014, to be within expectations. We understand that the group is poised to announce some material contract awards soon. Hence, we remain positive on SapuraKencana’s prospects.

Source: AmeSecurities