Sapura has secured five contracts (3 E&C and 2 drilling new/extension contracts) with a combined value of RM1.28bn. We are positive on these contracts, which reaffirmed Sapura’s competitiveness. However, we made no changes to our earnings forecasts as YTD wins of RM1.28bn is still deemed within our order-book replenishment of RM8bn. All in, maintain BUY rating on the stock with unchanged TP of RM0.43 pegging to unchanged 0.6x FY20 P/B.

NEWSBREAK

Sapura Energy has announced several contract awards with a combined value of approximately RM1.28bn. While the contract values of each individual contract are not disclosed, we believe bulk of the value is attributable to 3-year drilling contract secured for “Sapura T-9”.

HLIB’s VIEW

Won three E&C contracts. We are positive on the contract win as it demonstrates Sapura’s competitive edge to secure contracts both domestically and internationally following the stabilisation of oil prices. Sapura was awarded by Pan Marine Petroleum Services Company for the provision of installation of six subsea pipelines at Gulf of Suez for the Gulf of Suez Petroleum Company, a joint venture between BP plc and the Egyptian General Petroleum Company. The duration of the subcontract works is for 10 months and expected to be completed by 2QFY20. Meanwhile, Sapura’s joint venture with PT Timas Suplindo has been awarded with a contract for EPCI- provision and installation of pipeline, pipeline end terminations (PLETs) and in-line tee structures (ILT) & pre-commissioning activities from ENI East Sepinggan Limited. The works are expected to be completed by FY20. Thirdly, Sapura has been awarded key roles by Phoenix International (Australia) in the Submarine Rescue Service contract for the Royal Australian Navy to design and fabricate a Remotely Operated Vehicle (ROV). 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 tender assisted drilling rig (TADR), “Sapura T-9” at Tabu field, offshore Peninsular Malaysia by Exxonmobil Exploration and Production Malaysia Inc. The contract has a firm contract period of 3 years, commencing in the 3QFY20. Besides, Sapura also received another extension contract from Petronas for “Sapura Berani” for drilling of nine wells at Sumandak, Erb West and Dulang facilities, offshore Sabah. The contract is expected to be completed by 4QCY19. We reckon that there is no rate adjustment on the DCR of the extensions, estimated at USD100k/day.

Forecast. This is Sapura’s first contract win announcement in FY20. It accounts for 16% of our FY20 order book replenishment assumption of RM8.0bn and 7.4% of its existing order book of RM17.2bn as of 4QFY19. It is still within our expectations and therefore no changes to our estimates.

Maintain BUY, TP: RM0.43. We reiterate our BUY rating with unchanged TP of RM0.43, pegging to unchanged 0.6x FY20 P/B. We believe Sapura should be recording better sequential quarterly results and turnaround in the 2HFY20 due to pick up in E&C contribution, and interest savings after paring down its debt. FY21 growth should be largely coming from SK408 gas field’s maiden contribution.

Source: Hong Leong Investment Bank Research - 15 Apr 2019