SapuraKencana  Petroleum  (SAKP)  informed  Bursa  Malaysia  yesterday that  its  wholly-owned  subsidiary,  Kencana  HL  SB,  had  on  16  May accepted a letter of award from ExxonMobil Exploration and Production Malaysia  for  the  provision  of  hook-up  and  commissioning  (HUC)  and topside  major  maintenance  services.  We  retain  our  MYR4.96  FV  as  we make no changes to our earnings estimates. Maintain BUY.

-  Five-year  contract  with  one-year  extension  option.  We  understand that  the  contract  is  valued  at  MYR300m-MYR500m  over  the  stipulated period,  and  includes  the  supply  of  manpower  and  equipment,  materials purchased  and  provision  of  marine spread.  Based  on  our  projection,  we believe  that  the  contract  win  would  boost  SAKP’s order  book  to  some MYR18.5bn-MYR18.7bn.

-  No changes to our earnings estimate. Assuming an annual revenue of MYR100m  (the  maximum  value  for  the  contract  is  MYR500m)  from  this contract  over  the  next  five  years,  we  estimate  that  this  new  order  will enhance  our  revenue  forecasts  by  a  mere  0.6%  for  FY14  and  1.2%  for FY15.  Assuming  net  margins  of  15%,  it  would  then  enhance  FY14  and FY15  earnings  estimates  by  only  0.7%  and  1.1%  respectively.  As  the impact to our earnings estimates is minimal, we make no changes to our forecast numbers.  

- Maintain BUY. All in all, we reiterate our BUY recommendation on SAKP as  we  see  room  for  an  upside  in  its  share  price.  Our  FV  remains unchanged  at  MYR4.96,  pegged  to  22x  FY15  EPS.  We  deem  this premium  as  justifiable,  given  the  Group’s:  i)  robust  order  book  of MYR18.5bn-MYR18.7bn,  and  ii)  FY13-FY16  earnings  CAGR  of  45.1%. This stock is our top large-cap pick within the oil & gas space.

Source: RHB