News

• SapuraKencana has been awarded eight contracts worth a total of RM1.58bn.

• The details as below: i) Fabrication, hook up and commissioning (FHC) – 3 contracts worth RM710m. ii) Offshore construction and subsea services (OCSS) – 3 contracts worth RM520m. iii) Drilling division – 2 contracts (1 new award and 1 contract extension) worth RM350m.

Financial impact

• These contracts win will expand orderbook by 6% to RM28bn (circa 3.3x FY14 revenue).

• This will be part of and in line with our assumption on orderbook replenishment. We have factored in RM2.6bn contract replenishment in FY15 for FHC and OCSS division (ytd win is circa RM2.6bn). Pros/Cons

• We are positive on the contract awards. For FHC, the company won an EPCIC contract for Baronia and Tuk au well head platform worth RM480m and expected to be completed by 4Q18.

• Healthy orderbook of RM28bn will provides solid earning visibility despite weak oil price environment.

• To recap, SapuraKencana has recently announced to acquire three blocks of oil assets from Petronas Carigali in Vietnam with total purchase of US$400m. The ac quisition is expected to increas e 2P oil reserves by 80% to 39mm boe This is aligned with the company strategy to grow its reserves size.

Risks

• Execution risk, escalation of vessel and fabrication costs.

Forecasts

• Unchanged as this will be part of our assumption orderbook replenishment.

Rating

BUY

Positives

• Strong balance sheet and knowhow and globaltrend towards offshore production.

Negatives

• Increas ed competition for growth markets andcomplexities of running a larger organization.

Valuation

• Maintain BUY call with an unchanged TP of RM 3.73 based on unchanged 14x FY01/16 EPS of 26.6 sen/share.

Source: Hong Leong Investment Bank Research - 8 Dec 2014