What’s New

• Sapura Energy and its partners Petronas Carigali and Sarawak Shell Bhd have taken Final Investment Decision (FID) to develop the Gorek, Larak and Bakong fields as phase 1 in the SK408 Production Sharing Contract in East Malaysia.

• The FID came after the Field Development Plan approval from Petronas and concurrently, the signing of the gas sales agreement for phase 1 of the SK408 gas field development.

• The fields under the SK408 development project will be developed as three separate wellhead platforms tied back to the existing processing facility to the Petronas MLNG complex in Bintulu.

Comment

• Silver lining. Given the recent lacklustre performance in its Engineering & Construction (E&C) and Drilling divisions, the Exploration & Production (E&P) arm is seen as the bright spot of the company.

• The latest development came after recent successes in securing exploration blocks in Mexico and New Zealand.

• Currently, the development of SK310 B15 field has completed and has just started contributing to earnings. Going forward, gas from SK408 will come on stream in late CY2019 and could lift production volume to 12 mmboe from 4 mmboe currently. We have yet to include potential earnings contribution into our forecast with first gas expected in end-2019. Its net reserve stands at 253 mmboe (95% gas, 5% oil) that could last for over a decade.

Earnings Outlook

• Earnings forecast maintained – We are keeping our forecasts for FY19 and FY20 as prospects are expected to be flat until earnings stream start to flow from the SK408 field and activity in the oil and gas industry takes off.

• Steady orderbook – Orderbook improved to RM16.6b after winning RM2.7b worth of new contracts so far this year. Going forward, RM5.6b of the orderbook will be booked in CY18 followed by RM3.1b in CY19 and RM7.9b in CY20 and onwards. Sapura Energy has more than doubled its bidding to RM50b globally from RM20b previously and aims to raise its orderbook to RM18b- 20b in the next two years.
• Risk – The group faces challenges in replenishing its orderbook amid tough operating environment despite recent gains in oil prices as capex spending has yet to pick up.

Valuation & Recommendation

• We are keeping our recommendation at BUY with an unchanged target price of RM0.80 based on 0.5x P/B and a lower NTA of RM1.60 per share.

Source: JF Apex Securities Research - 12 Apr 2018