• T7 Global announced that it has secured a contract from Petronas to decommission 53 wells or circa 40% of Petronas’ 137 planned well abandonment projects over 2024-2026.

• We are positive with this contract as it further strengthens its position as one of prominent player within well decom space.

• We made some adjustment to our FY24-26F forecast. We expect earnings to grow by 38% CAGR to RM81mn over FY23-26F driven by (i) new income from Nong Yao MOPU, (ii) revenue recognition from construction progress of KLIA baggage handling system (BHS) contract, and (iii) higher demand for well decommissioning activities.

• Upgrade T7 Global to a BUY (from a HOLD) with a higher SOPderived fully diluted TP of RM0.62. Our TP implies 13x FY24F P/E.

Secured a New Contract for Petronas’ P&A Program

T7 Global announced that it has secured a contract from Petronas to supply a low-cost jack-up drilling rig for the plug and abandonment (P&A) program of 53 firm wells. The company shared that this contract may begin by end 2024 or early 2025 and it may take 3-4 years to fully complete the P&A campaign.

Expanding Orderbook for P&A

We are positive with this contract as it further strengthens its position as one of prominent player within well decommissioning space. Note that the number of wells to be decommissioned for this contract (i.e. 53 wells) represents close to 40% of the planned 137 wells to be decommissioned by Petronas over 2024-2026. Besides that, it is more than triple what it has executed so far (i.e.15 wells including 5 and 10 wells for Pulai A field and M3 oilfield respectively). While the company did not disclose the value for this contract, we estimate that this contract could be valued at approximately RM500mn, based on previous P&A cost of RM10mn/well (see Table 2). This will boost its outstanding orderbook by 22% to RM2.8bn and provide earnings visibility for the next 3 years.

Change to Earnings Forecast

We take this opportunity to revisit our earnings forecast (Table 3). We expect its earnings to grow by 38% CAGR to RM81mn over FY23-26F driven by (i) new income from Nong Yao MOPU that may begin earlier than our initial estimate in 1Q24, (ii) revenue recognition from construction progress of KLIA baggage handling system (BHS) contract, and (iii) higher demand for well decommissioning activities.

Upgrade to a BUY with higher TP of RM0.62

We upgrade T7 Global to a BUY with a higher SOP-derived TP of RM0.62 (from RM0.52). This implies 13x FY24F P/E. Key risks to our earnings and recommendation includes (i) over-estimate the profit margin for new MOPU charter income, and (ii) delay in project execution.

Source: BIMB Securities Research - 24 Jul 2024