Sapura Energy has secured RM1.8bn worth of multiple new contracts. The contracts win brings the YTD sum to c.RM4.5bn and total orderbook to c.RM17bn. We raise our FY19 and FY20 orderbook replenishment assumptions to RM6bn as YTD job wins has exceeded our assumption. We narrow our FY19 core loss forecast to RM3.4m and adjust our FY20 forecast from core loss to core profit of RM160.3m following the adjustment of orderbook replenishment assumptions. We introduce our FY21 earnings forecast of RM188.3m. Maintain HOLD with higher TP of RM0.66.

NEWSBREAK

RM1.8bn worth of new contracts. Sapura announced that it has been awarded multiple contracts with a combined value of c.RM1.8bn. The awards consist of: (i) EPCC for SK408E Gorek Development and F6 Brownfield Integrated Module Project; (ii) EPCC for the Package B and Package C for SK408 Larak and Bakong Development Project; (iii) Subsea Wells and Pipeline Replacement Project V for Oil and Natural Gas Corporation Limited (ONGC); (iv) Supply of Equipment’s & Materials and construction for Berth A2 and Modification of Berth D at Marine Terminal, Jamnagar for Sikka Ports & Terminals Limited; (v) EPCC of gas oil pipeline from Ayatsil Line 16 for Pemex Exploration and Production; (vi) Provision of Riserless Lightwell Intervention Services for Montara Subsea Wells by PTTEP Australasia (Ashmore Cartier) Pty Ltd; (vii) Provision of a Semi- Submersible Tender Assist Drilling Rig (tender rig) ‘Sapura Berani’ for Petronas Carigali; and (viii) Extension of contract for tender rig ‘Sapura Esperanza’ with Sarawak Shell Berhad/ Sabah Shell Petroleum Company Limited and EQ Petroleum Malaysia Limited. The firm contract period of these contracts varies from 3 months to 2 years, spanning until FY21.

HLIB’s VIEW

Exceed orderbook replenishment assumption. The contract wins brings the YTD sum to c.RM4.5bn, exceeding our FY19F orderbook replenishment assumption of RM3bn. This brings Sapura Energy’s total orderbook to c.RM17.0bn (including JV level orderbook). We raise our FY19 and FY20 orderbook replenishment assumption to RM6bn following latest contracts win and to take into account of improvement in upstream capex due to recovery of oil prices.

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

Expected to improve utilisation rates. Positive to the E&C and drilling divisions of the group as the contracts would help to improve utilisation of its underutilised fabrication yard T&I vessels and drilling rigs.

Forecast. We narrow our FY19 core loss forecast to RM3.4m and adjusting FY20 forecast from core loss to core profit of RM160.3m following the adjustment of orderbook replenishment assumptions. We introduce our FY21 earnings forecast of RM188.3m.

Maintain HOLD, TP raised to RM0.66. Maintain HOLD rating with higher TP of RM0.66 (from RM0.64) following earnings forecast adjustment and roll forward of valuation horizon from FY19 to FY20. Our TP is derived from FY20 P/BV ratio of 0.4x.

Source: Hong Leong Investment Bank Research - 22 Jun 2018