News

• SapuraKencana announced that its subsidiary, Tioman Drilling Company Sdn Bhd (“Tioman”), has won an extension of a contract with CARIGALI PTTEPI OPERATING COMPANY SDN BHD (“CPOC”) and CARIGALI-HESS OPERATING COMPANY SDN BHD for the utilisation of the self-erecting tender rig, the T-6. 
• The contract duration is from 21 Apr 2013 to 20 Jul 2013. 
• The contract quantum is USD9.2m

Comment

• Sapura Kencana owns T-6 in a 51% partnership with Seadrill.
• Seadrill own the remaining share. 
• The T -6 is a Robray Offshore self-erecting rig with a rated water depth of 410 ft and a drilling depth of 20,000 ft. 
• Although the contract value is small, we view the contract award positively and reaffirms our view that SapuraKencana is a proxy to global growth in offshore O&G production expansion. 
• It also reaffirms our expectations drilling activities will continue to be robust and drive earnings going forward. 
• The contract makes up 0.67% of our replenishment assumptions for FY01/14, and is in line.

Risks

• Execution risk. 
• Escalation of vessel running and fabrication costs.

Forecasts

• Maintained. Due to the relatively small size of the contract and overall orderbook in line with our expectations, we have not changed our earnings estimates.

Rating

BUY

• Positives –
  • Strong balance sheet and knowhow.
  • Global trend towards offshore production.
• Negatives –
  • Increased competition for growth markets.
  • Complexities of running a larger organization.

Valuation

• TP maintained at RM2.77 based on 20x FY01/14 EPS of 13.9 sen/share.

Source: Hong Leong Investment Bank Research - 18 Oct 2012