News

• SENERGY announced that it has been awarded multiple contracts with a combined value of RM1.5bn.

• The awards consist of: (i) Pan Malaysia T&I for Petronas Carigali and Sarawak Shell; (ii) Maintenance, Construction and Modification for Petronas (5 years); (iii) Hook Up and Commissioning for Repsol; (iv) Mechanical works petrochemical plant for Tecnimont HQC; and (v) EPC and T&I for FSRU for CELSE.

Financial Impact

• This is deemed within our expectations as our FY19F revenue assumption has already imputed additional RM3bn revenue to be contributed by new contracts on top of the existing RM3bn orderbook.

• The contracts would bring its orderbook to RM16.6bn.

• Overall operating margin for these contracts would be at 8- 11%, consistent with the group’s recent reported numbers.

• Slight positive to the E&C division of the group as the contracts would help to improve utilisation of its underutilised fabrication yard and T&I vessels.

Pros/Cons

• The contracts secured would help to offset the completion of several E&C contracts by end of this year.

• However, significant portion of the secured contracts would be on work order basis and therefore burn rate of the contract would be decided by clients, which is dependent on the volatility of oil prices.

Risks

• Execution risk;

• Prolonged low oil price; and

Forecasts

• Maintain forecast.

Rating

HOLD ( ↔ )

• Near term headwinds persists for the group with a gap still to be closed to maintain its revenue base. Weak rate outlook for tender rig division and margins for E&C segment has weighed on the company’s near term earnings outlook.

Valuation

• TP is maintained at RM1.56 based on 0.7x FY19 PBV multiple.

Source: Hong Leong Investment Bank Research - 16 Nov 2017