News

• SENERGY announced that it has been awarded contracts with a combined value of US206m (circa RM879.0m).

• The award consists of: (i) Engineering, Procurement, Construction & Installation (EPCI) work for PTTEP in Myanmar (ii) T&I work for ONGC (India) for C26 cluster (iii) upgrade offshore single point mooring replacement for Brunei Shell and (iv) Inspection, Repair & Maintenance (IRM) for PTTEP Australasia.

Financial Impact

• This is deemed within expectations as our revenue assumption imputes additional RM3bn revenue to be contributed by new contracts on top of RM3bn to be covered by existing orderbook.

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

• Slight positive to the group as it helps to improve utilisation of its underutilised fabrication yard and T&I vessels.

Pros/Cons

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

• 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 despite slowdown in the industry.

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

Risks

• Execution risk;

• Prolonged low oil price; and

Forecasts

• Maintain forecast.

Rating

HOLD ( ↔ )

• Near term headwinds persists for the group with oil prces being volatile while the group still has gap to be close to maintain its revenue base. Nevertheless, long term outlook of the stock is positive with huge potential monetisation of its gas field (SK408) beyond 2018 given huge potential reserves in hand.

Valuation

• TP is maintained at RM2.01 based on unchanged FY18 PBV of 0.9x.

Source: Hong Leong Investment Bank Research - 9 Jun 2017