News

SapuraKencana Petroleum announced that its subsidiary Kencana HL Sdn Bhd has received a letter of award (LOA) from ExxonMobil Exploration and Production Malaysia for the provision of hook up, commission and topside (HUCC) major maintenance services.

The contract value is estimated to be around RM300m to RM500m.

The contract duration is 5 years with an extension option of 1 year.

Comment

We are positive on the contract which is included in our oderbook replenishment. The contract reaffirms our view that SapuraKencana is a proxy to global growth in offshore O&G production expansion.

We understand that this contract is part of the RM10 bn HUCC. Major winner from the party is Dayang (Top pick, BUY) which managed to grab ~RM4bn in total.

The contract win makes up 3-5% and 2-3% of our replenishment assumptions for FY14 and FY15 respectively, largely in line.

Risks

• Execution risk,
• Escalation of vessel, fabrication and drilling costs.

Forecasts

• Maintained due to the relatively small size of the contract and overall orderbook in line with our expectations, we have not changed our earnings estimates.

Rating

BUY

• Positives –
  • Strong balance sheet and knowhow,
  • Global trend towards offshore production.
• Negatives –
  • Increased competition for growth markets.
  • Complexities of running a larger organization.

Valuation

• Maintain BUY call with an unchanged TP of RM4.40 based on 20x EPS of 22 sen/share based on FY01/15 EPS.

Source: Hong Leong Investment Bank Research - 28 May 2013