Sapura has secured seven contract wins (6 E&C and 1 drilling) with a combined value of RM1.8bn. The job wins were above our expectations. Hence, we increased our earnings forecasts for FY22/23f by 29/17%. All in, we upgrade our Hold rating on the stock to a BUY with a TP of RM0.15 (from RM0.12) pegging to 0.3x (from 0.25x) FY21 P/B. Sapura’s recent string of contract wins and its successful cost optimisation measures could propel the Company forward.

NEWSBREAK

Sapura Energy has announced seven contract wins worth an estimated RM1.8bn:

(i) CRPO 59 LTA with Saudi Aramco for the provision of engineering, procurement, fabrication, transportation, installation and pre-commissioning of 3 oil jackets in Saudi Arabia. [14 months]

(ii) Wellhead platforms & pipeline installations and wellhead platforms removal campaign for Chevron Thailand. [12 months]

(iii) PAN Malaysia transportation and installation of offshore facilities for PTTEP Sarawak. [3 months]

(iv) Transportation and installation works for Kasawari gas development project from Heerema Marine contractors. [6 months]

(v) Provision of marine site investigation and pipeline route survey services for Bestari Field from Petronas Carigali. [7 months]

(vi) Maintenance execution of gas turbines, compressors and related equipment in Petronas LNG complex from Malaysia LNG Sdn Bhd. [9.5 years]

(vii) Extension of semi-sub tender rig (Sapura Pelaut) with Brunei Shell for 145 days.

HLIB’s VIEW

Expanding presence in the Middle East market. We believe that the CRPO 59 LTA contract from Saudi Aramco is a huge step forward with regards to its efforts to expand its footprint in the Middle East. Recall that Sapura had minimal exposure to the Middle East before CY19 and we believe that we can anticipate more contract wins from the region to come through going forward.

Contract wins expected to add on to increased operational efficiencies. We believe that Sapura would be able to capitalise on its contract wins with its improved operational efficiencies over the last few quarters as 9MFY21 operational expenses has decreased by 35% YoY. We believe that Sapura will be in the black from FY21 onwards after being in the red for 3 consecutive years (from FY18-FY20).

Minimal solvency risk at this juncture. We believe that the Company would be able to refinance its short-term debt by a tenure of at least 5-years and we believe that the refinancing exercises will be done by 1HCY21. Its recent trend of contract wins and cost optimisation measures would be able to soothe the refinancing process.

Forecast. We increased our earnings forecast for FY22-23f by 29/17% to account for the aforementioned contract wins.

Upgrade to BUY, TP: RM0.15. We upgrade our Hold call to a BUY with a TP of RM0.15 based on 0.3x (from 0.25x) FY20 BVPS (below -0.8SD from 5-year mean P/B) as we have become more positive on Sapura due to its (i) recent string of contract wins, (ii) improved operational efficiency and (iii) improved prospects on contract wins from the Middle East.

Source: Hong Leong Investment Bank Research - 11 Feb 2021