News

• SapuraKencana has been awarded contracts worth of US$72m or RM300m.

• The contracts including: i) EPCC and drilling works on D35DP-B platform by Roc Oil; ii) subcont ract for the instllation works for the Vasai East Project I India; and iii) extension five months contract on SKD Alliance. Financial Impact

• These contracts win will expand orderbook from RM23bn to RM23.3bn (2.3x of FY15 revenue).

• This will be part of and in line with our assumption on orderbook replenishment. We have factored in RM3.2bn contract replenishment in FY16 for FHC and OCSS division (YTD win is circa RM2.3bn).

Pros/Cons

• We are positive on the contract awards as this will provides solid earning visibility despite weak oil price environment.

• Outstanding orderbook stood at RM23.3bn (or 2.3x FY15 revenue). The near-term risk is slower orderbook replenishment given only 65% of our FY16 revenue has already been secured.

• The recent development approval of SK310 should 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.

• 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.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD

Positives

• Integrated business model, global trend towards offshore production.

Negatives

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

Valuation

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

Source: Hong Leong Investment Bank Research -  8 Dec 2015