News

• Sapura Energy (SAPNRG) announced that it has been awarded a contract with a value of c.RM2bn from Mubadala Petroleum to undertake engineering, procurement, construction, installation and commissioning (EPCIC) works for the Pegaga Development Project.

• The contract scope of work comprises of EPCIC of an offshore integrated central gas processing platform facility in Block SK320, offshore waters of Sarawak, Malaysia.

• The works are expected to be completed by 3QCY21.

Financial Impact

• This is deemed within our expectations as the total YTD job wins of c.RM3bn fall within our FY19F orderbook replenishment assumption of RM4bn.

• The contracts would bring its orderbook to c.RM18bn.

• 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.

Risks

• Execution risk;

• Prolonged low oil price;

• Low rig utilisation.

Forecast

• Maintained as the contract win is within assumption.

Rating

UNDER REVIEW

• We put our rating on Sapura Energy UNDER REVIEW (previously Hold) pending 4QFY18 results release next week where we hope to obtain further clarity on the near-term prospects for the company. We do not discount the possibility of further impairment on its drilling assets in the upcoming results. As such, there is potential downside bias to our earnings forecast and TP.

Valuation

• Our previous TP of RM0.67 was based on 1.0x FY19F P/NTA multiple.

Source: Hong Leong Investment Bank Research - 22 Mar 2018