SapuraKencana Petroleum (SKPETRO) informed Bursa Malaysia that its jointly-owned entity with Seadrill Ltd has secured a contract to charter and operate three pipe-laying support vessels (PLSVs), valued at about USD2.7bn.  As  the  revenue  from  this  job  is  likely  to  be  recognized  only in  2H2016,  we  make  no  changes  to  our  earnings  estimates.  Maintain BUY  for  the group’s strong  medium  term  earnings  visibility.  Our  FV  is unchanged at MYR4.96, pegged to 22x FY15 EPS. 
 
- Partnership  bearing  fruit.  Shortly  after  completing  its  acquisition  of equity  partner  Seadrill  Ltd’s  tender  rigs,  SKPETRO  has  secured  its second contract in Brazil worth USD2.7bn for an eight-year duration, with an option to extend by another eight years. The contract was awarded to Sapura Navegacao Maritima, which is jointly controlled by TL Offshore (a wholly-owned  subsidiary  of  SKPETRO)  and  a  Seadrill  subsidiary, Seabras Servicos De Petroleo.

- Minimal  impact  on  balance  sheet.  As  each  PLSV  will  cost  about USD300m,  Sapura  Navegacao  Maritima  will  need  to  secure  USD900m in financing, most likely via project financing. Hence,  the contract award will  only  require  some  USD90m  in  investments  from  SKPETRO, assuming a 20:80 equity-to-debt financing.  

- No  changes  to our earnings  estimates. As  revenue  from the contract is only expected to be booked by 2Q2016 (FY17), we make no changes to our earnings estimates over the next three years (FY14-FY16).

- Maintain  BUY.  We  reiterate  our  BUY  recommendation on  SKPETRO given  this  positive  development  and  the company’s strong  earnings prospects  over  the  medium  term.  The  stock’s  near-term  catalysts include:  i)  MYR3bn  worth  of  transportation  and  installation  contracts,  ii) MYR1bn-MYR2bn worth of subsea contracts, and iii) a new risk-sharing contract. We value the stock at MYR4.96, pegged to 22x FY15 EPS.

Source: RHB