News

• Last Friday, SKPETRO announced that it has been awarded contracts with a combined value of US$215m (approximately RM889m).

• The awards consist of: (i) EPCC work on B126 Cluster Pipeline project by ONGC in India (ii) charter for Tender Assist Rig “SKD Pelaut” by Brunei Shell and (iii) Underwater Marine Maintenance services for Sepat MOPU by Petronas Carigali.

Financial Impact

• This is deemed within expectations as our revenue assumption imputes an additional RM3bn contract to be replenished to hit our target for FY18 on top of current orderbook which could cover for circa RM3.4bn.

• Overall margin of these contracts to the group would be at 8-11%, consistent with its recent numbers reported.

Pros/Cons

• Orderbook stands at RM17.7bn including ytd wins worth RM3.3bn. However, the current orderbook, in our opinion, is insufficient to sustain the group’s revenue base (in FY18 in particular) at its previous levels, in line with the general slowdown in the O&G industry.

• Field Development Plan (FDP) for the SK310 block B15 field by the group has been approved by Petronas with 1st gas targeted to be at 4Q17.

• For its T&I segment, likelihood of premature contract termination remains low for the time being. All vessels working for Petrobras are still operating at full utilisation, showcasing client’s confidence in SKPETRO’s service.

• More T&I jobs could be announced before end of this year before from the potential Pan Malaysia T&I umbrella contract packages to be awarded later in 2016.

Risks

• Execution risk;

• Prolonged low oil price; and Forecasts

• Maintain forecast.

Rating

HOLD

• Despite weak earnings outlook, we turn slightly more positive on SKPETRO due to (i) relatively resilient Energy earnings post cost cuts (ii) huge gas reserve with high monetisation potential and (iii) anticipated news flow on upcoming Pan Malaysia T&I packages.

Valuation

• TP is maintained at RM1.57 based on unchanged 0.7x PBV multiple.

Source: Hong Leong Investment Bank Research - 4 Oct 2016