News

Scomi Energy won a RM75m contract from Virginia Indonesia Company (Vico) to provide solids control equipment and environmental handing services.

The contract duration is for a period of three years.

Comments

We are positive on the award as this is the second contract award in a week in addition to its recent Petronas contract in Myanmar valued at RM90m. With the contract win, orderbook will exceed RM5.2bn.

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 14x CY15 P/E versus UMW Oil and Gas at 21x 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 RM5.2bn.
• 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 an unchanged TP of RM1.02 based on unchanged 16x CY15 EPS of 6.4sen/share

Source: Hong Leong Investment Bank Research- 15 Jan 2014