News

• SKPETRO announced that it has been awarded contracts with a combined value of US$300m (approximately RM1.3bn).
• The award consists of: (i) Underwater project for Petronas; (ii) Soil investigation services; (iii) T&I work for CPP of Bardeg and Baronia project; (iv) T&I for pipelines and top side (Bunga Pakma Development Project); and (v) Rig contract for SKD Alliance, tender-assisted drilling rig. Financial Impact
• This is deemed within expectations as our revenue assumptions have already imputed an additional RM3bn (now circa 50% filled to date) contract to be replenished on top of current orderbook (which could cover for circa RM3.4bn) in order to hit our target for FY01/18.
• Overall margin of these contracts are expected at circa 8- 11%, consistent with its recent reported margins.

Comments

• 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 company for the time being. All vessels working for Petrobras are still operating at full utilisation, showcasing client’s confidence in SKPETRO’s service despite slowdown in the industry.
• More T&I jobs could be announced in 2017 from the Pan Malaysia T&I umbrella contract packages awarded back in 2016. Despite the weak earnings outlook, we have turned slightly more positive on the company due to: (i) improvement in oil price outlook; (ii) its huge gas reserve with high monetisation potential; and (iii) anticipated news flow on upcoming Pan Malaysia T&I packages.

Risks

• Execution risk.
• Prolonged low oil price.

Forecasts

• Maintain forecast.

Rating

HOLD (↔)

• We are turning more positive on the stock premised on firmer oil prices outlook in 2017. In addition, long term outlook of the stock is positive with huge potential of monetisation of its gas field (SK408) beyond 2018 with huge potential reserves in hand.

Valuation

• TP is upgraded to RM1.80 (from RM1.57) based on higher FY18 PBV of 0.8x from 0.7x previously.

Source: Hong Leong Investment Bank Research - 10 Jan 2017