INVESTMENT HIGHLIGHTS

• Sapura Energy Berhad (SEB) announced slew of contracts worth USD205.96m (approx. RM879.01m)

• Contracts are from the Energy & Construction portfolio

• More than RM6.4b worth of jobs secured in CY17

• Outstanding orderbook stands at over RM16b

• Maintain NEUTRAL with unchanged TP of RM1.71

Jobs from Engineering & Construction. SEB announced a slew of jobs from the E&C segment worth a total USD206m or approximately RM879m. The jobs secured include sub-contracting works.

EPCI for Zawtika Development. The first contract is for the Engineering, Procurement, Construction and Installation (EPCI) of wellhead platforms, associated pipelines and tie-ins for the Zawtika Development Project Phase IC. The EPCI is a sub-contracting work for PT Gunanusa Utama Fabricators which is the main contractor and PTTEP Intl. Ltd which is the client for the project. The subcontract works consists of EPCI of associated pipelines, transportation and installation of new offshore wellhead platforms, brownfield modifications of existing platforms and installation of telecommunication and control system integrated to existing facilities to be executed in the Zawtika Field. The sub-contracting works will last till March 2018.

Upgrade offshore SPM replacement. The second award of contract is for the Seria Crude Oil Terminal Oil Export System upgrade offshore single point mooring (SPM) replacement by Brunei Shell Petroleum Co. The contract scope of works consists of project management, engineering, procurement, fabrication, transportation and installation and hook-up/pre-commissioning of one of Brunei Shell’s new Single Point Mooring-1 and Pipe Line End Manifold-1 complete system as well as decommissioning of certain parts of existing infrastructure for the project. The contract duration is approximately 21 months commencing April 2018.

T&I for ONGC India. The third job is for the transportation and installation (T&I) balance subsea works for Oil and Natural Gas Corp. Ltd., India. The contract scope of work comprises of T&I balance subsea works for C26 Cluster Pipeline Project at ‘C-24PI to TCPP’ segment and ’BB to BA’ segment, relocation of anodes at NLW platform. The scope also includes sump caisson removal at BA platform and to divert the flow to inlet of closed drain header at BPA platform. The offshore works are expected to be completed by second quarter of 2017.

IRM services for PTTEP Australasia. The fourth contract announced is for the provision of inspection, repair and maintenance (IRM) for PTTEP Australasia (Ashmore Cartier) Pty Ltd. The Contract is for the provision of IRM services including saturation diving and remotely operated vehicle (ROV) intervention works in Montara field. The job is expected to be completed by July 2017.

Orderbook update. Approximately RM6.4b worth of jobs has been secured for year-to-date CY17 and RM1.2b for FY18. Current total orderbook stands at over RM16b (after excluding Berantai RSC’s portion). Approximately RM5.5b of the orderbook is to be recognised in FY18 and the remaining RM11.2b to be recognised in FY19 and beyond.

Impact on earnings. No changes to earnings estimates as contract wins are within projections.

Fundamentals intact. With a current cash hoard of around RM3.5b, net gearing level of around 1.15x and potential remaining cash injection of around USD63m from the cessation of Berantai RSC by June 2017, we believe that the group will be able to weather the tough operating environment whilst seeking for more opportunities.

Maintain Neutral. At this current juncture, we are still recommending a NEUTRAL stance on SEB with an unchanged TP of RM1.71 per share (FY18PBR of 0.7x). As such, with oil prices holding ground at around USD50pb and company fundamentals improving quarter-over-quarter, we posit that there could be trading opportunities with the stock and investors could benefit from the volatile price movements.

Source: MIDF Research - 9 Jun 2017