- We maintain our HOLD rating on SapuraKencana Petroleum with an unchanged fair value of RM2.70/share, based on a higher FY16F PE of 14x. 

- The group announced that it has been awarded with a lump sum contract by India’s Oil and Natural Gas Corporation Ltd (ONGC) for the Mumbai High South Redevelopment Phase-3 project on a turnkey basis. The value of the contract is approximately  SD273mil (~RM1bil).

- Our earnings are unchanged as this is in line with our new order book assumptions of RM6bil-RM8bil for FY16FFY18F. This brings total contract wins to ~RM2bil for the year thus far and raises the group’s order book to ~RM25bil.

- The scope of the contract entails surveys, design, engineering, procurement, fabrication, transport and installation, hook-up and commissioning of three new wellhead platforms (WHP), ~116km of submarine pipelines, ~7.5km of submarine cable, modification works on existing platforms including clamp-on works on two platforms, subsea repair works on three jackets and D1C pile remedial works.

- This contract award is not a surprise to us as it was earlier reported that SapuraKencana has put in the lowest bid against its competitors which included local-based Larsen & Toubro Ltd, Abu Dhabi-based National Petroleum & Construction Co, and US-based McDermott.

- We understand that SapuraKencana is actively bidding for more EPCIC jobs currently. Upstream reported that the group is currently competing for Thailand’s PTTEP multiyear turnkey contract to build 12 wellhead platforms on a confirmed basis with options for another 13 platforms. In addition, each platform brings with it associated subsea pipelines, tie-in work, brownfield modifications, and the supply of other subsea equipments. The contract is expected to be awarded in August or September 2015.

- SapuraKencana is also currently negotiating the gas sales agreement with Petronas and will be able to monetise its substantial gas reserves once it is concluded. The development concept has been finalised for the SK310 block, and is expected to commence development this year with first gas targeted for the second quarter of 2017.  A capex of USD300mil will be incurred on a gross basis for this development, which includes a wellhead platform, pipelines, and drilling costs. 

- The stock now trades at an FY16F PE of 12x.