Sapura has secured several contracts (2 EPCTI in Mexcio and Pan Malaysia underwater services contracts in Malaysia) with a combined value of RM1.8bn. We are positive on these wins, which reaffirmed Sapura’s competitiveness. No changes to our earnings forecasts despite YTD wins of RM7bn has exceeded our orderbook replenishment of RM6bn as we ascribe a lower contract burn rate. All in, maintain BUY rating on the stock with unchanged ex-rights TP of RM0.41 pegging to unchanged 0.5x FY20 P/B.

NEWSBREAK

Sapura Energy has announced several contract awards with a combined value of approximately RM1.8bn. The periods of these contracts vary from few months to 5 years, spanning until CY23.

HLIB’s VIEW

5-year Pan Malaysia underwater services contract. We are positive on the contract wins as they demonstrate Sapura’s capability to grab jobs both locally and internationally amidst the competitive landscape. Domestically, Sapura secured the 5- year provision of Pan Malaysia underwater services (Package C) for Petroleum Arrangement Contractors (PACs) consisting of Sarawak Shell Bhd /Sabah Shell Petroleum Company Limited, Murphy Sarawak Oil Co., Ltd./ Murphy Sabah Oil Co., Ltd, Repsol Oil & Gas Malaysia Limited and Kebabangan Petroleum Operating Company Sdn Bhd. These contracts are on a call-out basis and the value of the contract is dependent on the work orders received from the clients.

2 EPCTI contracts in Mexico. Besides this, Sapura was awarded an Engineering, Procurement, Construction, Transportation and Installation (EPCTI) contract from Hokchi Energy S.A. de C.V. in the Hokchi field development in the Gulf of Mexico. The works are expected to be completed by end of 1Q CY20. While the contract values of each individual contract are not disclosed, we believe bulk of the value is attributable to this contract. Separately, Sapura also bagged another EPCTI contract from ENI Mexico S. de. R.L de. C.V and is expected to be done by 2Q CY19. We reckon that these E&C projects will be able to match its targeted EBITDA margin of 15%.

Forecast. With these RM1.8bn contract wins, Sapura’s YTD sum is lifted to RM7.0bn, accounting for 117% of our FY19 order book replenishment assumption of RM6.0bn. However, we are maintaining our earnings estimates as we ascribe a lower contract burn rate after adjusting higher annual contract replenishment of RM7bn for both FY19-20.

Maintain BUY, TP: RM0.41 on ex-rights basis. We reiterate our BUY rating with unchanged ex-rights TP of RM0.41, pegging to unchanged 0.5x FY20 P/B. This is premised on strengthening of balance sheet post monetisation exercise of its E&P arm (net gearing lowered to 0.6x as of FY20) eliminating near term financial risk. Additionally, improving contract flow and turnaround in FY20 will be additional positive catalysts to Sapura.

Source: Hong Leong Investment Bank Research - 22 Nov 2018