News

Scomi Energy has been awarded two contracts in Myanmar worth a combined RM90m by Petronas.

The contracts are from Petronas Carigali Myanmar Inc (PCMI) and Petronas Carigali (Hong Kongt) Ltd (PCML) for the provision of drilling fluids, solid control, well bore cleanout, drilling waste management equipment, materials and services.

The contracts duration are for a period of three years. PCML’s work commenced in Dec 13 while PCMI’s job is expected to begin in July 14.

Comments

We are positive on the award as the company continue to secure contracts despite its already huge orderbook. With the contract win, orderbook will surged to RM5.1bn.

The company is also involved in the bidding for the 3rd round of RSC. We gather from management that the prospect look promising. We conservatively do not include the potential award in our forecasts. A potential marginal field win will raise SES’s earnings by 23% based on our estimate.

DWM will be the main booster for long term growth as legislation is trending towards zero discharge as adopted in Caspian and North Sea. We understand that the company is in the vanguard of the development of Microwave technology for the treatment of oil contaminated drill cuttings. The commercialization of this product in 2014 might be the game changer and new growth driver for the company.

SES is trading at 13x CY 15 P/E versus UMW Oil and Gas at 20x CY 15 P/E. We expect high UMW O&G valuation driving up the P/E multiple of drilling related stocks such as SES.

Forecasts

Unchanged as the contract win already factored in our earnings forecast.

Catalysts

• Potential to secure RM400m worth of contracts on top of its already huge orderbook of RM5.1bn.
• Contract win in DWM business given the potential addressable market size of US$2.1bn.
• A marginal field contract win.

Risks

Global recession hitting O&G price; Technology advancement; Relaxing of drilling waste management regulations.

Valuation

We maintained our BUY call with a TP raised from of RM0.90 to RM1.02 after we rolled forward valuation to CY15 (based on unchanged 16x CY15 EPS of 6.4sen/share).

Source: Hong Leong Investment Bank Research - 9 Jan 2014