What’s New

• Sapura Energy has entered into a Heads of Agreement to sell a 50% stake in its fully-owned subsidiary Sapura Upstream to Austria’s OMV AG.

• Both parties are still negotiating on the proposed transaction which is based on an enterprise value of US$1.6b.

Comment

• The announcement came as a surprise as the management had earlier considered listing its Exploration and Production (E&P) unit.

• Nevertheless, we view the announcement as positive as the deal would not only raise cash but also create synergy as OMV is also an integrated oil and gas company like Sapura with capabilities in both upstream and downstream.

• Synergistic partnership. OMV is involved in oil exploration and production in Europe, the Middle East, Africa, Russia and Australasia. In 2017, it achieved daily oil and gas production of 348,000 boe/d.

• Its expertise will benefit Sapura Upstream in developing gas fields in offshore Sarawak, New Zealand, Gulf of Mexico and Australia.

Earnings Outlook

• Earnings forecast maintained – We are keeping our EPS forecasts pending more details and finalisation of the deal.

• 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 next year. The SK408 field will come on stream in late 2019. Sapura’s net reserve stands at 253 mmboe (95% gas, 5% oil) that could last for over a decade.

Valuation & Recommendation

• We are maintaining our recommendation at BUY with a target price of RM0.42 (based on 0.5x P/B and a NTA of RM0.84 per share).

Source: JF Apex Securities Research - 13 Sept 2018