SAPNRG, in partnership with Petrofrac, is reported to have secured an EPC contract from ADNOC for the Dalma Gas Development Project, worth a total USD591m. Assuming a 50:50 stake, this means SAPNRG’s portion could be worth ~USD296m. Overall, we are positive on the win, being its first contract award in UAE. BUY with a TP of RM0.33 pegged to 0.4x FY20E PBV. Our call is premised on the stock currently trading at floor valuations of merely 0.3x PBV, and below its rights issue exercise price of RM0.30. We believe earnings turnaround is a long-term eventuality, with all the fundamental building blocks gradually put in place, such as: (i) strong order-book backed by job wins, (ii) finance and depreciation expenses now much palatable post-rights and impairments, (iii) gradual increase in drilling rigs utilisation, and (iv) first gas from SK408 to boost E&P segment.

It was reported that SAPNRG, via its partnership with Petrofrac Emirates LLC, has secured a contract from the Abu Dhabi National Oil Company (ADNOC), for the Dalma Gas Development Project. The scope of works includes: engineering, procurement, fabrication, transportation, construction, installation, testing and commissioning of all offshore facilities, several wellhead platforms, 189km of subsea pipelines, cables and umbilical forming the Dalma Gas Development Project.

Considering the competition, having successfully fought off McDermott International and Saipem who were thought to be contending bidders, we believe margins for the project could be around the low-teens percentage. This also represents SAPNRG’s first (known) contract win in FY21, bringing its order-book to an estimated RM16bn.

To recap, SAPNRG is also one the players under Saudi Aramco’s long-term agreement (LTA), thus qualifying it for direct tenders for jobs from Aramco. The Middle East is the single largest region for SAPNRG’s tender book, making up about ~32% of ~USD8bn tender-book, and as such, we believe strengthening its position in the region would be target for the company.

Source: Rakuten Research - 20 Feb 2020