- We maintain our BUY recommendation on SapuraKencana Petroleum (SapuraKencana), with an unchanged fair value of RM5.70/share, based on an FY15 PE of 25x, which is the 2007 peak achieved by Kencana Petroleum. Our FY15F-FY17F earnings are unchanged.

- The group announced that its 50%-owned Sapura Diamante, a pipe-laying support vessel (PLSV) has started operations in Brazil’s pre-salt fields on 28 June 2014 – over three months ahead of the original contractual delivery date.

- This is not surprising as our earlier checks with management had indicated that the first PLSV in Brazil would be delivered in July this year, albeit still slightly later than the group’s revised schedule in 2Q2014.

- While the group will be able to fast-track the earnings from this PLSV, there will be no early-delivery bonus incentive earned due to the delivery of the 350-tonne Sapura Esmerelda, which was originally being built in Brazil, being delayed by 18 months.

- The Brazilian shipyard, OSX Shipyard has since filed for bankruptcy. Hence, the construction of Sapura Esmerelda has been assigned to IHC Merwede in Netherlands, which is building all six PLSVs ordered by the group’s 50%-owned Sapura Navegacao Maritima. Seadrill owns the remaining 50% stake in Sapura Navegacao Maritima.

- By bringing forward the deliveries of Sapura Diamante (to July 2014 from early-4Q2014), Sapura Topazio (to 3Q2014 from 1Q2015), Sapura Onix (to 1Q2015 from 2Q2016), Sapura Jade (to 4Q2015 from 2Q2016) and Sapura Rubi (to 1Q2016 from 3Q2016), the group’s rescheduled proposal to Petrobras is envisaged to offset the project delays caused by Sapura Esmerelda.

- Recall that SapuraKencana has secured a US$1.4bil (RM4.5bil) 5-year firm pipe-lay support vessel charter contract in November 2011 and another US$2.7bil 8+8 year charter in June 2013, both from Petrobras.

- We are positive on the group’s adaptability in renegotiating its contracts with a major foreign national oil company on a winwin basis for both parties. Since the beginning of 2014, the group has secured RM6bil in new contract awards. The

group’s order book stands at RM30bil (2.7x of FY15F revenue) and remains the largest within the O&G sector – above Bumi Armada’s firm orders of RM22.7bil.

- We remain positive on the group’s order book accretion and it remains on the prowl for fresh tenders of RM30bil, as bids for Malaysia’s prolific central processing platform projects could materialise towards the end of the year. The stock still trades at an attractive FY16F PE of 17x currently – a 41% discount to SapuraCrest Petroleum’s peak of 29x back in 2007.

Source: AmeSecurities