We are positive on the five contracts secured, which reaffirmed SENERGY’s competitive edge in the industry. However, we make no changes to our earnings forecasts as the wins are within our order-book replenishment target. We expect no dividend pay-out in FY19 in view of cash conservation. Reiterate MARKET PERFORM call on the counter with an unchanged TP of RM1.55, pegging to FY19E PBV of 0.7x.

Five contracts award totalling RM1.47b. SENERGY announced that yesterday its direct and indirect wholly-owned subsidiaries have been awarded contracts with a combined value of RM1.5b. The firm contract period of these contracts varies from 1 year to 5 years, spanning until FY23.

Bagged Pan Malaysia T&I and MCM contract. We are positive on the news as it demonstrates its ability to win contracts continuously amidst the competitive environment. Although the respective individual contract value was not disclosed, we reckon that the bulk of the combined contract value is attributable to the Pan Malaysia T&I contract as well as the Petronas’ MCM contract. We were not surprised by these awards which had been reported by the media and widely anticipated by the market. Apart from that, SENERGY also secured two smallish local E&C contracts for Respol and RAPID projects. All in, such projects, in our view, could fetch EBITDA margin of approximately 15-20%, in line with its historical FY17 margin of 16% but much lower than the superior margins of >25% during the good times in 2012-13 due to the current competitive environment. (Refer to table in the next page for contract details)

One E&C contract in Brazil. In addition, SENERGY has been awarded by Centrais Elétricas de Sergipe S.A. to undertake: (i) EPC related to pipeline for UTE Porto de Sergipe 1 Combined-Cycle Power Plant, (ii) T&I of the FSRU’s Mooring System, and (iii) HUC of the FSRU/riser/umbilical in Brazil. SENERGY is likely to mobilise Sapura 3500 vessel for the job given its track record in the region. The job is expected to be completed by Dec 2018 and we reckon the project margin to be similar to the local jobs secured as mentioned above.

No change to our FY18-19E earnings forecasts. With this latest total win of RM1.5b (c.10% of the 2Q18 outstanding order-book of RM15.1b), the total contract secured YTD is raised to RM2.8b, which is well within our current year assumption of RM4.5b (c.62%) in FY18. However, we do not expect any dividend payout in FY19 (from estimated DPS of 1.0 sen previously) in view of cash conservation for business operations in the future.

Keep MARKET PERFORM call. Our TP is maintained at RM1.55 pegged to an unchanged FY19E PBV of 0.7x, factoring the potential impairment arising from drilling assets and uncertain timing of contract award despite active bidding. Such valuation is in line with the current sector valuation as SENERGY is often viewed as a proxy to oil prices given its position as an integrated service player as well as oil producer.

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

Source: Kenanga Research - 16 Nov 2017