Another Four Contracts in the Bag

Sapura Energy (SAPE) has announced that its wholly owned subsidiary has been awarded a batch of contracts with a total value of USD206m (RM879m based on USD/MYR rate of USD1:RM4.27). We maintain our earnings forecasts. Our HOLD rating and 12-month SOTP-based target price of RM1.70 are unchanged.

Contracts Total RM879m…

SAPE announced four contracts with a total contract value of RM879m. The work mainly involves engineering and construction (E&C), transportation and installation (T&I), as well as inspection, repair and maintenance (IRM). Details of the respective contracts are below:

a) Subcontract work awarded by PT. Gunanusa Utama Fabricators involving engineering, procurement, construction and installation (EPCI) of wellhead platforms, associated pipelines and tie-ins for the Zawtika development project. Work is expected to be completed in March 2018.

b) Upgrading of offshore single-point mooring replacement awarded by Brunei Shell Petroleum Sdn Bhd for The Seria Crude Oil Terminal oil export system. Contract duration will be approximately 21 months beginning from April 2018.

c) T&I balance subsea work awarded by ONGC for C26 cluster pipeline project. Work is expected to be completed by 2QCY17.

d) IRM services awarded by PTTEP Australasia including saturation diving and remotely operated vehicle intervention work in Montara field, Australia. Work is expected to be completed by July 2017.

…however, Stronger Factors Needed for Rerating, in Our View

These contract wins bring SAPE’s YTD job wins to RM2.65bn. All in, we remain positive that SAPE will maintain its momentum in securing contracts given its good track record and reputation. We make no changes to our earnings forecasts as the deals fall within our FY18 orderbook replenishment assumption of RM5bn.

Valuation and Recommendation

We maintain our HOLD call and target price of RM1.70 based on a SOTP valuation. We believe the current valuation already largely reflects the fundamentals of the company. Upside risks to our call include (i) quicker recovery in contract awards, (ii) stabilization at higher oil price levels, (iii) higher demand for rigs. Downside risks to our call would be (i) slowdown in contract awards, (ii) weaker-than-expected margin and further impairments.

Source: Affin Hwang Research - 8 Jun 2017