• Sapura Energy announced that Sapura Esmeralda, one of 6 PSLVs owned by its JV company, received a 2-year contract extension from Petrobras worth approximately RM580m.

• We estimate that this will increase its JV companies’ total orderbook by 9% to RM6.8bn. However, we think there is little impact to earnings from this development.

• Maintain a BUY call on Sapura Energy with unchanged TP of RM0.12. We are optimistic that Sapura Energy will be able to execute its turnaround plan underpinned by upcycle in O&G capex spending on lagged impact from high oil price. Key risk to our call and TP is potential dilution from debt restructuring plan.

Contract Extension for Sapura Esmeralda

Sapura Energy announced that its JV company has received a 2-year contract extension (beginning 2nd Aug 2022) from Petrobras for Sapura Esmeralda pipe laying support vessel (PLSV) worth USD130m or approximately RM580m. The scope of work includes the provision of services and charter of installation and recovery of flexible pipes in Brazilian waters.

Contract Expiry is Looming for 3 Other PLSVs

Recall that Sapura Esmeralda is one of Sapura’s 6 PLSVs that are operating in Brazil for Petrobras. Earlier, Sapura Diamante and Sapura Topazio PLSVs have successfully secured a contract with Petrobras for 3.5 years beginning September 2021 and February 2022 respectively. We understand that the contract for remaining PLSVs – Sapura Onix, Sapura Jade and Sapura Rubi – are expected to end in 2023/24 with the option to extend for another 8 years.

Impact to Earnings Outlook is Minimal

We are not surprise with this contract extension given that the PLSVs are generally among its good assets operating in frontier oil and gas market with strong utilisation of more than 90%. This business has been profitable (see Chart 4) with a net book value of c.RM1.7bn as at end of FY22. We estimate that this contract extension will boost its JV companies’ total orderbook by 9% to c.RM6.8bn. However, we think the impact to earnings is minimal with debt restructuring plan remains as key to its turnaround plan. Of note, Sapura Energy currently has an orderbook of RM8.3bn (excluding JV companies) and tenderbook of RM22.8bn.

Maintain BUY with unchanged TP RM0.12

Maintain a BUY call on Sapura Energy with unchanged TP of RM0.12. While the stock price has declined by c.70% over the 1-year period, we expect a successful debt restructuring plan to lift its stock price from current level.

Source: BIMB Securities Research - 3 Aug 2022