- 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, which have already incorporated new annual order assumptions of RM10bil-RM12bil, are unchanged.

- Upstream has reported that SapuraKencana’s wholly owned TL Offshore is leading in the bid to secure a transportation and installation (T&I) contract, potentially valued at US$500mil (RM1.6bil) for the Nam Con Son 2 export pipeline network in Vietham.

- TL Offshore is likely to nominate its 50%-owned heavylift pipelay vessel Sapura 3000 for this project, which involves 150 kilometres of pipelines to be installed from the producing Thien Ung discovery to the Bach Ho field, and further onshore in Long Hai. It encompasses installing 70km of pipeline starting from late 2014, followed by the remaining sections of 80km beginning in 2Q2015.

- TL Offshore appears to be ahead in the bid compared to its closest rival, Singapore’s Swiber Offshore, during the final leg of the contest to secure a recommendation from the tender team. Upstream said Swiber was initially leading but was eventually out-bid by TL Offshore.

- The contract award is now awaiting final approval from the Vietnamese authorities and could be sealed within days in order for the project to be delivered according to schedule. Despite earlier uncertainty over the delivery of pipe on order from Ukraine, PetroVietnam is hopeful that the pipe supply can be secured in time to begin offshore installation in 3Q2014.

- The winner of this tender will provide support to its main contractor, Vietsovpetro, which will also deploy its pipelay vessel Truong Sa for shallow water pipeline work under Nam Con Son 2. Nam Con Son 2 also requires new pipelines to be laid between the Hai Thach and Moc Tinh fields, but these will be tendered out separately at a later date.

- The increasingly visible pipeline of new contracts in offshore construction work together with its fresh tenders of RM30bil underpins the group’s strong earnings outlook. Since the beginning of 2014, the group has secured RM6bil in new contract awards. The group’s outstanding 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.

- The stock still trades at an attractive FY16F PE of 17x currently – a 41% discount to SapuraCrest Petroleum’s peak PP 12247/06/2013 (032380) of 29x back in 2007.

Source: AmeSecurities