News

• SKPETRO announced that it has been awarded contracts with a combined value of US$97.4m (approximately RM433.6bn).

• The award consists of: (i) Pan Malaysia T&I work (2 years); (ii) EPCC job for Sepat MOPU (stabilization and repair works); (iii) PCC for air cooler module; and (v) PCPP for Dana and D30 facilities decommissioning project.

• All of the jobs above are awarded by Petronas to the company.

Financial Impact

• This is still within our orderbook replenishment assumption for the company. To note, we have imputed RM3bn replenishment to the group’s orderbook (of which RM2bn has been achieved).

• Overall margin of these contracts are expected at circa 8- 11%, consistent with its recent reported margins.

• While relatively small compared to its previous win (RM1.5b) announcement in Jan 2017, it is still positive news to the company and reduces our concern about the company’s orderbook replenishment risk.

Comments

• Orderbook of the company is circa RM17.2bn based on back on the envelop calculations, similar to the level as per announced in 3QFY17.

• We expect more contracts flows to come in for the group on the expectation of more stable oil prices in 2017.

• While T&I have seen higher activities, EPCC division is still slow with only smallish jobs being dished out. We believe this will persist throughout most of 2017 and bigger EPCC jobs would only be seen towards late 2017.

Risks

• Execution risk;

• Prolonged low oil price; and

Forecasts

• Maintained.

Rating

HOLD ( ↔ )

• We are turning more positive on the stock premised on firmer oil prices outlook in 2017. However, the recovery has already been priced in and we believe only the materialisation of a major CAPEX cycle by oil producers would further catalyze the stock.

Valuation

• TP is maintained at RM1.80 based on unchanged FY18 PBV of 0.8x.

Source: Hong Leong Investment Bank Research - 3 Mar 2017