INVESTMENT HIGHLIGHTS

• Sapura Energy Berhad (SEB) announced RM1.47b worth of contracts

• Notable contract wins within expectations

• Year-to-date contract win totalling RM4.12b

• Outstanding orderbook stands at approximately RM15b

• Tenderbook amounts to approximately USD8b

• Upgrade to BUY with an unchanged TP of RM1.69

Fourth slew of contract announcement for CY2017. SEB announced the fourth slew of contracts for CY2017 of RM1.47b. This brings the total value of contract wins in CY2017 to RM4.12b. The individual contract details are as follow:

Pan Malaysia Transportation & Installation of Offshore Facilities. SEB’s subsidiary Sapura Offshore Sdn. Bhd. was awarded contracts to undertake works in relation to the Pan Malaysia Transportation & Installation of Offshore Facilities for PETRONAS Carigali Sdn. Bhd. and Sarawak Shell Bhd. The works comprise transportation and installation of offshore facilities including platform, structures and pipelines and its associated works. These works are to be executed in 2018.

Provision of Maintenance, Construction and Modification (MCM) Services. This umbrella contract (call-out structure) was awarded to Sapura Fabrication Sdn. Bhd. and its partner Borneo Seaoffshore Engineering Sdn. Bhd. The scope of the contract encompass the Provision of Maintenance, Construction and Modification (MCM) Services (Package A - Offshore) – Sarawak Gas for PETRONAS Carigali Sdn. Bhd. The contract duration is for five years expiring in September 2022 with one year extension option.

Hook-Up, Commissioning and Offshore Construction Services.

This contract is similar in structure (call-out basis on pre-agreed unit rates and prices) with the abovementioned MCM contract and was also awarded to Sapura Fabrication Sdn. Bhd. By Repsol Oil and Gas Ltd. The contract is for the onshore preparation and handling, onshore prefabrication works, offshore installation and hook-up, inspection, testing and pre-commissioning of structural members and supports, piping, instrument and electrical equipment on existing and new production and processing platforms and facilities. The Contract duration is for a primary period of two years expiring in September 2019 with one year extension option.

Provision of Mechanical Works for the Flexi High Density Polyethylene (HDPE) Plant for the RAPID Project. This contract was awarded to Sapura Fabrication Sdn. Bhd for the provision of mechanical works for the Flexi High Density Polyethylene (HDPE) Plant for Rapid Project - Unit 3215 by TecnimontHQC Sdn. Bhd. The work consists of the provision of project management, supervision, equipment, tools and labour for the mechanical work Package. The work is expected to be completed by March 2019.

Provision of Engineering, Procurement and Construction services, Transportation and Installation of the Offshore Floating, Regasification and Storage Unit’s Mooring System services, and Hooking-up services for the FSRU/Riser/Umbilical. Sapura Energy Do Brasil LTDA was awarded the contract to undertake: (i) Engineering, Procurement and Construction related to Pipeline for UTE Porto de Sergipe 1 Combined Cycle Power Plant; (ii) Transportation and Installation of the FSRU’s Mooring System; and (iii) Hooking-up of the FSRU/riser/umbilical by Centrais Elétricas de Sergipe S.A. (CELSE). The work comprises engineering design, procurement, construction, installation and pre-commissioning of the pipeline, transportation and installation of the Yoke and hook-up of FSRU/ risers/umbilical. The work is expected to be completed by 31 December 2018.

Orderbook update. The current outstanding orderbook is at approximately RM15b, where RM3.1b will be recognised in FY18, RM3.4b in FY19 and the remaining RM8.5b in FY20 onwards.

Upgrade to BUY. With the recent selldown in share price due to the exit of one of its substantial shareholders and the overall decline in the broader FBM KLCI, we are of the opinion that SEB offers generous potential upside for investors. We are taking a long-term BUY view on SEB with a TP of RM1.69 per share (FY19PBR of 0.7x). Our BUY recommendation is premised on: (i) Strength in global crude oil prices which will bode well for upstream offshore service providers; (ii) Pickup in offshore activities following improving utilisation rates for heavy offshore assets; and (iii) increasing capital expenditure plans by oil majors for shallow water and deepwater exploration and production ventures in 2018 onwards.

Source: MIDF Research - 16 Nov 2017