News

SapuraKencana has won a contract for the provision of Subsea Inspection Services for Carigali Hess’ Facilities.

The contract comprises of subsea services which includes inspection of Carigali Hess jackets, pipelines and floating storage and offloading vessel (FSO). SapuraKencana will also provide diving equipment, remotely operated vehicle, support vessel, personnel and tools required to perform the services.

The contract value is approximately RM62m over four year period on call out basis.

Comment

We are neutral on the contract which is included in our orderbook replenishment. This contract translates to RM16m per annum which is insignificant to its FY15 revenue of RM8.6bn. SapuraKencana’s orderbook stood at RM25bn with 51% of orderbook from Brazil, 24% from Malaysia and the rest from South East Asia, Australia and others. Current tenderbook size is estimated to be similar to outstanding orderbook.

To recap, SapuraKencana has recently won a tender for Newfield’s oil assets in Malaysia with a purchase price of RM2.85bn. The deal is expected to complete in 1QFY15. This acquisition price translates to US$25/boe of 2P reserves versus recent international transaction range of US$15/boe to US$32/boe. We understand that the Newfield asset in Malaysia registered US$239m profit in FY2012 (Acquisition price of 3.8x FY12 P/E). However, we note that the oil production is declining due to nature of mature field and might only sustain for 3 years and Newfield’s own DCF is only US$416m for its producing assets. The key catalyst will come from its 30% stake in Block 310 with estimation of Gas Initially In Place (GIIP) ranges from 1.5-3 trillion cubic feet. We are positive on the deal and have not factored into our forecasts. This deal will enable SapuraKencana to gain an immediate foothold and recognition as an upstream resource owner and operator.

Moreover, SapuraKencana together with Petrofac is looking to tender for Petronas’ matured PM-6 and PM-9 blocks. We understand that SapuraKencana is competing with Talisman Energy and Schlumberger on these fields. Successful bidding will transform SapuraKencana to be a major player in E&P segment.

Risks

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

Forecasts

Unchanged.

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 RM4.74 based on 20x EPS of 23.7 sen/share based on FY01/15 EPS.

Source: Hong Leong Investment Bank Research - 28 Oct 2013