News

• SapuraKencana has secured a Field Development Plan (FDP) approval from Petronas for the SK310 B15 gas field development project.

• First gas delivery is targeted for 4QCY17. Financial Impact

• The B15 field is expected to produce 100 MMscfd of hydrocarbon gas for Petronas’ LNG complex in Bintulu, Sarawak.

• With 30% effective stake, we estimate EBITDA contribution of US$23m per annum or 3% of FY15’s EBITDA.

Pros/Cons

• We are positive on the approval as this will help to monetise its substantial gas assets. To recap, SK310 has total reserve size of 2 tcf. Upon commencement of production, it will have 15-20 years of life span.

• We understand the requirement capex is about US$90m for its 30% stake in B15 field. The cont ract duration is circa 5.5 years.

• Another gas field - SK408 has reserve size of almost same or larger than SK310 and it is surrounded by proven oil fields with 45-55% chance of success rate. It may require lesser capex given its close proximity with existing infrastructure.

• Outstanding orderbook stood at RM23bn (or 2.3x FY15 revenue). The near-term risk is slower orderbook replenishment given only 65% of our FY16 revenue has already been secured.

Risks

• Execution risk;
• Prolong low oil price; and
• Delay in contract award.

Forecasts

• Unchanged as the earnings contribution from SK310 will only be realised in FY19.

Rating

HOLD

Positives

• Integrated business model, global trend towards offshore production.

Negatives

• Increased competition for growth markets, complexities of running a larger organizat ion, plunged in oil price.

Valuation

• We opine that low oil price is likely to persist in midterm amid concerns about oversupply from US Shale, lifting of Iran sanction and weakening demand from China. We maintained our HOLD recommendation with unchanged TP of RM2.00 based on 12x CY16 EPS.

Source: Hong Leong Investment Bank Research - 5 Nov 2015