We are positive on the four contracts secured, which reaffirmed SENERGY’s competitiveness. However, we made no changes to our earnings forecasts as it is within our order-book replenishment as well as vessels utilisation assumptions. Reiterate our OUTPERFORM call on the stock with an unchanged TP of RM2.24 pegged to 1.0x FY19E PBV.

Four contracts award totalling RM879m. Yesterday, SENERGY announced that its direct and indirect wholly-owned subsidiaries have been awarded contracts with a combined value of c.USD206.0m (RM879.0m). The firm contract period of these contracts varies up to 21 months, spanning until FY20.

1-year EPCI contract. We are positive on the news as it demonstrates its ability to win contract continuously amidst the competitive environment. Although the contract value was not disclosed, we reckon that the bulk of the combined contract value is attributable to the Engineering, Procurement, Construction and Installation (EPCI) of wellhead platforms, associated pipelines and tie-ins for the Zawtika Development Project. Minimal work has started and it is expected to end by March 2018. Besides this, SENERGY has also secured the upgrade offshore single point mooring replacement job from Brunei Shell Petroleum Co Sdn Bhd for the Seria Crude Oil Terminal, which could fetch EBITDA margin of approximately 25%. The duration of the overall works will be 21 months with the offshore works planned to commence in April 2018.

Two other short-term E&C contracts. SENERGY also secured two E&C contracts from ONGC and PTTEP Australasia. These works include provision of T&I balance subsea works for C26 Cluster Pipeline Project as well as provision of inspection, repair and maintenance (IRM) services in Montara field. These are relatively short-term jobs which will be completed by 2Q-3QCY17. We anticipate that the project margin is in line with its international E&C project margin at mid-teens. (Refer to table in the reverse page for contract details.)

No change to our FY18-19E earnings forecasts. With this second contract win of RM879.0m (c.5% of the 4Q17 outstanding order- book of RM16.7b), this brings the total contract secured YTD to RM1.3b, which is well within our current year assumption of RM4.5b (c.29%) in FY18. Note that SENERGY is announcing its 1Q18 results this month and we believe there could be improvement QoQ from the red but down YoY with slower work orders.

Maintain OUTPERFORM call. Our TP is maintained at RM2.24 pegged to 1.0x FY19 PBV, higher than the current sector valuation of 0.7x PBV. We believe a higher premium is warranted in view of: (i) its competitive advantage in winning local and overseas contracts continuously, and (ii) its long-term positioning as an integrated service player as well as a gas producer with decent gas reserve.

Downside risks to our call include further sharp drop in oil prices and unexpected delays of projects in hand.

Source: Kenanga Research - 09 Jun 2017