Sapura Energy (SAPE) announced that it has secured a total of RM1.47bn worth of contracts, which comprised of 4 local and 1 international jobs. We view this positively as this will be an add-on to its RM16.7bn order book. Nevertheless, we believe that the bulk of the total contract value is derived from the MCM contract which is on a 5+1 year call-out basis. We keep our earnings forecasts unchanged. In view of the recent sell-down after the exit of its substantial shareholder Tan Sri Mokhzani Mahathir, we upgrade the stock to HOLD (from SELL) on an unchanged SOTP-based TP of RM1.35.

MCM Likely to Have the Highest Contract Value of Current Jobs

SAPE announced that it has been awarded 4 contracts in Malaysia which include: 1) Pan-Malaysia offshore facilities transportation & installation work for Petronas Carigali and Sarawak Shell in 2018; 2) Petronas Carigali’s maintenance, construction and modification (MCM) contract for Package A – Offshore Sarawak Gas for a 5+1 year period; 3) hook-up, commissioning and offshore construction services for Repsol Oil & Gas Malaysia over a 2+1 year period; and 4) mechanical works for a Flexi High Density Polyethylene (HDPE) plant for the RAPID project by TecnimontHQC Sdn Bhd, which is expected to be completed by March 2019. Contracts 2 and 3 are on a callout basis.

Secured 3 Works for Same Client in Brazil

Abroad, SAPE has secured a contract to perform: 1) engineering, procurement and pipeline construction contract for the UTE Porto de Sergipe 1 combined cycle power plant; 2) transportation & installation for the offshore Floating, Regasification and Storage Unit (FSRU) mooring system; and 3)

hook-up of FSRU/Riser/Umbilical. All these works are for Centrais Elétricas de Sergipe S.A. (CELSE) and are expected to be completed by 31 Dec 2018.

Upgrade to HOLD on Valuation

Inclusive of these contracts, the order book size is lifted to ~RM18bn (from RM16.7bn). Ytd new contract wins secured amount to RM2.8bn, which is tracking behind our order book replenishment target of RM4bn. We believe that the bulk of the contract value in this announcement is derived from the MCM contract. Nonetheless, we upgrade SAPE to a HOLD (from Sell) on valuation with an unchanged SOTP-based target price of RM1.35.

Source: Affin Hwang Research - 16 Nov 2017