Sapura Energy (SAPE) announced that it has secured a total of 5 contracts worth an aggregrate value of RM1.3bn, comprising of two drilling contracts from Malaysia, and three international Engineering and Construction (E&C) contracts. However, this falls within our order book replenishment and rig utilisation assumptions. Maintain HOLD with an unchanged SOTP-based target price of RM0.35.

Secured 2 Drilling Contracts

SAPE”s drilling division has been awarded two contracts which will see the deployment of Sapura Berani semi tender rig for nine of Petronas Carigali’s wells at Sumandak, Erb West and Dulang facilities, targeted for completion by 4Q19, and Sapura T-9 rig to Exxonmobil E&P Malaysia for a 3-year period commencing 3QFY20

…and 3 E&C Contracts From Gulf of Suez, Indonesia and Australia

Separately, 3 E&C contracts were secured – i) installation of six subsea pipelines (57km) at the Gulf of Suez for Gulf of Suez Petroleum Company for 10 months and will be completed by 2QFY20. ii) EPCI of two 16” offshore rigid pipelines, in-line tee, and deep water pipeline end terminations expected to be completed by FY20, and iii) design and fabricate a remotely operated vehicle (ROV) for the Royal Australian Navy.

Positive Contract News; Awaiting Earnings to Materialize

We make no changes to our earnings forecast as all these fall under our construction order book plenishment and FY20 drilling utilization assumptions of 54%. Inclusive these batch of contracts, we estimate SAPE’s order book to be c. RM18.5bn.

Maintain HOLD

We reaffirm our HOLD rating and unchanged SOTP-based 12-month target price of RM0.35 as near term catalyst looks muted with earnings improvement only expected towards 2HFY20. Key upside and downside risks include: i) higher-than expected contract wins, ii) better rig utilization rates, and iii) further strengthening in global oil prices. Key downside risks include: i) a decrease in global oil prices, ii) delay in existing work orders, and iii) weaker drilling rigs utilization.

Source: Affin Hwang Research - 15 Apr 2019