SapuraKencana’s  units  have  received  one  new  contract  and  three drilling rig contract extensions totalling USD454m (c.MYR1.45bn) on top of  its  current  MYR25.4bn  orderbook.  However,  we  keep  our  FY15/16 forecasts  unchanged  as  we  have  already  factored  these  in.  We  are confident that its younger rigs will be contracted but remain wary on its older ones. Maintain BUY with an unchanged SOP-based MYR5.61 FV.

USD108m  new  drilling  rig  contract.  SapuraKencana  Petroleum (SapuraKencana)’s wholly-owned  SapuraKencana  Drilling  Pte  Ltd  has been  awarded  with  a  USD108m  (c.MYR346m)  contract  by  Total  E&P Congo  for  the  provision  of  its  SKD  Berani,  a  semi-tender  assist  (STA) drilling  rig,  for  a  1+1-year  period.  The  contract  will  commence  in  April 2014 and last till March 2015 (excluding the option period).    

Contract  extensions  totalling  USD346m.  SapuraKencana’s  100%-owned  SapuraKencana  Drilling  SB  has  accepted  extensions  to  its contract  with  Brunei  Shell  Petroleum  Co  SB  for  the  provision  of  an offshore  drilling  rig  and  services  with  its  SKD  Pelaut,  a  STA  drilling  rig. This USD92m (c.MYR294m) 2-year extension commences in April 2015 and ends in March 2017. Meanwhile, its Hong Kong-based wholly-owned subsidiary,  SapuraKencana  Drilling  Asia  Ltd  (SKDA),  has  accepted  an extension  to  its  contracts  with:  i)  Cabinda  Gulf  Oil  Co  Ltd  for  the provision  of  the  SKD  Setia  tender  assist  (TA)  drilling  rig  for  a  2-year period  commencing  Aug  2014  and  ending  July  2016  worth  USD164m (c.MYR525m),  and  ii)  with  Chevron  Thailand  Exploration  &  Production Ltd  for  the  provision  of  the  SKD  T-12  TA  drilling  rig  for  a  2-year  period commencing  March  2014  and  ending  in  end-March  2016.  The  latter contract is worth USD90m (c.MYR288m).

Demand  for  the  use  of  drilling  rigs  remains  healthy.  The abovementioned  contracts  show  that  demand  for  SapuraKencana’s drilling rigs remain encouraging. We believe this is due to their relatively young age profile. However, we are cautious on its rigs that are over 30 years  of  age.  We  believe  these  rigs  will  be  disposed  off  or  eventually retired after serving their respective contracts.      

Maintain BUY with SOP-based FV MYR5.61. Our FY15/FY16 earnings estimates  remain  unchanged  as  we  have  already  factored  in  the extensions  and  possibility  of  new  contracts  into  our  forecasts.  We  are assured  that  its  younger  rigs  will  continue  to  see  demand  for  their services. Maintain BUY with an unchanged SOP-based MYR5.61 FV.

Recommendation Chart

Source: RHB