Sapura Energy (SAPE) announced that it has been awarded three new E&C contracts and one drilling extension contract, totalling RM815m. SAPE has also successfully penetrated into Nigeria with its maiden contract win. All of these falls within our order book replenishment assumption for FY19E. Maintain our SELL call with unchanged RM0.32 target price.

RM815m Contract Wins Details

SAPE secured a total of RM815m contract wins, which consists of three new E&C contracts and one drilling contract extension. The E&C contracts are made out of: i) 5+1 years Pan Malaysia Maintenance, Construction, Modification (MCM) for ExxonMobil, ending July 2023, ii) inspection and recovery of subsea structures from subsea wells for the East Spar Project awarded by Quadrant Energy, to be executed using Sapura Constructor DP2 subsea construction vessel, and lastly iii) construction and installation of 16” gas pipeline spanning 20km for Shell Petroleum Development Company of Nigeria. In addition, SAPE also secured a 1+1 year contract for semi-tender SKD Pelaut from Brunei Shell Petroleum, expected to commence 2QFY2020.

YTD Contract Wins Still Within Our Order Book Replenishment Estimate

Inclusive of these contracts, YTD total contract wins amounted to RM5.3bn. We deemed the E&C replenishment-to-date to still be within our target as the total announced value also included SAPE’s self-awarded SK408 Larak and Bakong WHP, where the contract breakdown was not disclosed. The drilling contract also falls within our FY20 blended drilling fleet utilisation rate forecast of 54%.

Reiterate SELL

We maintain our earnings forecast, SELL rating and SOTP-based target price unchanged at RM0.32. SAPE will be releasing its 2QFY19 result sometime this week, which we expect results to be lukewarm. Key upside risks include (i) bigger contracts win than expected, better rigs utilisation rate, and stronger US$.

Source: Affin Hwang Research - 25 Sept 2018