Sapura has secured five contracts (2 E&C and 3 drilling new/extension contracts) with a combined value of RM760m. We are positive on these contracts, which reaffirmed Sapura’s competitiveness. However, we made no changes to our earnings forecasts as YTD win of RM9.3bn is still deemed within our order-book replenishment of RM9bn. All in, maintain BUY rating on the stock with unchanged 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 RM760m. While the contract values of each individual contract are not disclosed, we believe bulk of the value is attributable to 2-year drilling contract secured for “Sapura Jaya”.

HLIB’s VIEW

Won two E&C contracts. We are positive on the contract wins as they showcase its ability to secure jobs continuously amidst the competitive environment. Sapura was awarded a contract to undertake the Engineering, Procurement, Construction and Commissioning (EPCC) of PFLNG 1 Relocation and Tie In by Petronas Floating LNG 1 (L) Ltd. On the other hand, Sapura secured additional offshore transportation and installation work under the existing contract for the EPCC+ Installation contract for Full Field Development Phase 2 Facilities, North Malay Basin that was announced on 5 Feb 2018. Note that both jobs have already started recently and are expected to be completed by 2QFY20 and 3QFY20 respectively. We reckon that these E&C projects are able to match its targeted EBITDA margins of 10-15%.

Replenishment for drilling segment. Additionally, Sapura also secured a contract for the provision of a semi-submersible tender assisted drilling rig (TADR), “Sapura Jaya” in the Angolan waters by Cabinda Gulf Oil Company Limited, a subsidiary of Chevron Corporation. The contract has a firm contract period of 2 years, commencing in the 2QFY20 with another two 6-month extensions. Domestically, Sapura has bagged an extension contract from Sarawak Shell Berhad / Sabah Shell Petroleum Company Limited (Shell) for the provision of its semi-submersible TADR “Sapura Esperanza”. The extension entails drilling of three wells, which is expected to be completed by 1QFY20. Besides, Sapura also received another extension contract from Petronas for “Sapura Berani” for drilling of two wells at Sumandak facility, offshore Sabah. Both contracts are expected to be completed by 1QFY20. We understand that there is no rate adjustment on the DCR of the extensions, estimating at USD100k/day while DCR for Sapura Jaya should be higher than domestic rates.

Forecast. With these RM760bn contract wins, Sapura’s YTD sum is lifted to RM9.3bn, accounting for 103% of our FY19 order book replenishment assumption of RM9.0bn. It is still within our expectations and therefore no changes to our estimates.

Maintain BUY, TP: RM0.41. We reiterate our BUY rating with unchanged 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 - 8 Jan 2019