Replenishing E&C With Pegaga

Sapura Energy (SAPE) announced that it has secured an EPCIC contract from Mubadala Petroleum for the Pegaga CPP. This had been widely expected by the market as MMHE had earlier secured the Bokor CPP contract in April 2017, hence giving the impression that Pegaga CPP would fall into SAPE’s hands. These were the only two companies that were invited to bid for this contract. We make no changes to our existing earnings forecast as this contract is within our order book replenishment assumption for FY19E. We reaffirm our SELL call and target price of RM0.40 based on 0.6x P/NTA.

Contract Win Expected

SAPE has been awarded the engineering, procurement, construction, installation and commissioning (EPCIC) contract for the offshore integrated central-processing platform (CPP) for the Pegaga project through its wholly-owned subsidiary, Sapura Fabrication Sdn Bhd. The contract is expected to be completed by 3Q21 (roughly 42 months). No contract value was disclosed.

Details of CPP

While no contract value has been announced, Upstream reported that the development is valued at ~US$1bn consisting of the CPP, a 12,500-tonne topside, 7,000-tonne 8-legged jacket and 3,200-tonnes of piles. We estimate project margins to be at mid-to-high single-digit levels. The CPP is designed for natural gas throughput of 550m standard cubic feet of gas per day for Block SK320, offshore Sarawak, with first-gas target by 3Q 2021. The produced fluids will then be transported through a new 38” subsea pipeline tying in to an existing offshore network and send to the LNG plant in Bintulu. UAE’s Mubadala Petroleum, which is the PSC operator holds a 55% interest, with Petronas Carigali and Sarawak Shell holding respective stakes of 25% and 20%.

Reaffirming Our SELL Call Ahead of Results

We make no changes to our existing forecasts as this contract falls under our orderbook replenishment assumptions. We reaffirm our SELL rating and 12-month target price of RM0.40, based on a 0.6x FY19E P/NTA. Key upside risks include a recovery in contract wins and work activities, as well as higher-than-expected drilling rig utilization levels.

Source: Affin Hwang Research - 22 Mar 2018