Sapura has secured seven contract wins (2 E&C, 2 O&M and 3 drilling) with a combined value of RM1.2bn. The job wins were within our expectations. All in, we maintain our BUY rating on the stock with an unchanged TP of RM0.15 pegging to 0.3x FY22 P/B. Sapura’s recent string of contract wins and its successful cost optimisation measures will continue to propel the Company forward.

NEWSBREAK

Sapura Energy Has Announced Seven Contract Wins Worth An Estimated RM1.2bn:

1. Provision of transportation and installation of Pemanis Wellhead Platform Topside from PTTEP Sarawak. [8 months]
2. Replacement of subsea pipeline and risers including transportation and installation services from Enquest Petroleum. [5 months]
3. Provision of MCM Works for PM8 Extension PST From Enquest Petroleum. [1 Year]
4. TMM Services for Sarawak Shell and Sabah Shell. [3 Years and 4 Months]
5. Provision of tender drilling rig for drilling activities in offshore Malaysia by Petronas Carigali. [2 years + 2 years optional extension]
6. Integrated rig, drilling and completion services contract by Petronas Carigali for 6 wells in offshore Malaysia. [ 3-4 months]
7. Provision of offshore drilling rig (T-17) in gulf of Thailand by PTTEP Group. [3 years + 1 year optional extension]

HLIB’s VIEW

The return of drilling contracts. We believe that the recent flurry of drilling contract wins is a very positive leading indicator towards the recovery of the exploration segment of O&G. Sapura currently has 7 active tender drilling rigs and we expect its strong performance from its drilling segment to continue.

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 FY21 operational expenses has decreased by 32% YoY. We believe that Sapura will be in the black from FY22 onwards after being in the red for 4 consecutive years (from FY18-FY22).

Minimal solvency risk at this juncture. Its recent refinancing of its RM10.3bn debt will provide Sapura with timely financial headroom to meet its debt obligations on the back of a recovering O&G sector.

Forecast. We Maintain Our Earnings Forecast as the Contract Wins Were Within Our Expectations.

Maintain BUY at TP of RM0.15. We maintain our BUY call with a TP of RM0.15 based on 0.3x FY22 BVPS as we remain positive on Sapura due to its (i) improving operational efficiencies, (ii) strong and stable oil prices and (iii) improved prospects on contract wins.

Source: Hong Leong Investment Bank Research - 22 Jul 2021