- We maintain our HOLD recommendation on SapuraKencana Petroleum (SapuraKencana) with an unchanged fair value of RM2.60/share, pegged to a FY14F PE of 18x' 20% above the oil & gas sector's 15x currently. 

- Upstream reported that Abu Dhabi-based Mubadala Petroleum has dished out two key contracts involving the development of the first of three oilfields in the Gulf of Thailand. Block G1/48's Manora field, expected to cost US$246mil (RM763mil), will involve a leased floating, storage and offloading vessel chartered from Singapore-based Tanker Pacific Offshore Terminals. The fabrication and installation of the wellhead platform and pipelines has been awarded to Australia-listed Clough Ltd and SapuraKencana's TL Offshore with the platform fabrication at Clough's yard in Sattahip, Thailand. 

- Separately, France-based Total is expected invite tenders for an engineering, procurement, construction and commissioning contract to fabricate and install a new wellhead platform and pipelines to connect six producing wells for Brunei's Block B Maharaja Lela gas development. Potential bidders are SapuraKencana, Swiber Offshore, Malaysia Marine & Heavy Engineering and Nippon Steel's Batam-based subsidiary. SKS Marine Construction Yard, despite capacity constraints currently, may still be involved in some parts of the contract due to local content requirements. 

- These two contracts, which we estimate to cost below RM300mil individually, are part of the group's tender book of RM10bil currently. But given their relatively small scale, they will only slightly raise  SapuraKencana's order book of RM14bil, which is still the largest in the country vis-a-vis Bumi Armada's RM10bil. Hence, we maintain FY13F-FY15F net profit. We expect 1HFY13 results, scheduled to be announced later today, to be within our expectation.

- For the rest of the year, we expect a higher magnitude of newsflow for hook-up, construction and commissioning (HUCC) works vs. pure fabrication jobs. The tenders which the group is bidding for include the RM8bil-RM10bil Pan-Malaysian umbrella HUCC contract and RM600mil subsea maintenance job, which is scheduled to be announced by the end of this year. But the larger central processing platform and multiple wellhead platforms for the North Malay gas basin Phase 2 development and Bokor, Dulang and Semarang fields may only materialise next year. SapuraKencana's valuations are currently fair at an FY14F PE of 16x, which is at a 5% premium to the sector. We also do not discount the possibility of Seadrill disposing of its remaining 6% in SapuraKencana to fund its asset expansions in Brazil.

Source: AmeSecurities