News

SKPETRO announced the award of a contract by Oil and Natural Gas Corporation Limited for the Mumbai High South Redevelopment Phase – III Project, on turnkey basis.

Scope of work comprises surveys, design engineering, procurement, fabrication, T & I and HUC works on existing platforms.

Contract value is estimated at USD273m, scheduled for completion on 30th April 2017.

Comments

We deemed the contract award within expectations as we have earlier imputed contract replenishment worth RM2b for FY16. 

It is the first fabrication contract secured by the group year-todate amid the challenging environment in the market. To recap, the group has secured USD269m worth of T & I jobs earlier this year.

Assuming 10% EBIT margin, it is expected to contribute c.USD13.7m EBIT p.a to the group based on our back of the envelope calculations.

The contract win amidst a challenging fabrication industry is a positive for the group, showcasing its competitive track record in the execution of fabrication jobs.

In the near term, we expect more job wins for the group albeit contract sizes might be smaller as the contract tenders are expected to be stronger in 2H16 after oil majors reposition themselves to the current oil price scenario.

Outlook

SKPETRO’s latest orderbook stands at RM24.5b, mainly comprising tenders for its E&C division.

For now, the drilling division Teknik Berkat’s tender barge has yet to win any contract. Besides, 3 other semisubmersible rig (West Berani, West Menang and West Jaya) will have to seek for new contracts in the market this year and the renegotiated rates of the new contracts might be under downward pressure given the weakness in the rig market.

Two Petrobras PLSVs (Diamante and Topazio) have been delivered and is currently contributing to the group. The assets are currently running at full utilisation and Petrobas see no signs of slowdown on its projects with timely payments from Petrobras. Its next PLSV is on track to be deployed in September this year and is expected to contribute positively to the group.

On its Pan Malaysia HUC contract, work orders have been secured from Petronas and other PSCs to keep the group busy until October, allaying near term worries on significant slowdown in its HUC contract.

Its Vietnamese upstream asset acquisition is still pending approval from the Vietnamese government while it still has until early 2016 to satisfy the conditions stipulated in the SPA signed last year.

For newfield projects, gas discoveries in SK301 have been transformed into 2P assets. It is close to securing a gas sales agreement with Petronas (targeted to be signed in Q216) to monetise its gas assets, but significant earnings contribution is expected to be only seen post 2018.

Forecast

Earnings and forecast are maintained.

Rating

Maintain MARKET PERFORM

Valuation

We maintain our TP at RM2.55 pegged to unchanged 15x CY16 PER in line with big cap O&G companies’ PER under the current

Risks to Our Call

• Lower-than-expected margins for business segments

• Lower-than-expected contract replenishment.