What Happened

• SapuraKencana Petroleum Bhd (SAKP) announced new contract wins (Figure 1) totaling USD300mn (RM1.3bn, RM4.48/MYR) for its E&C (Engineering & Construction) Malaysia and Drilling segments.

Our Take

• We are positive on the new chunky E&C contract wins, which may prelude improving contract momentum for the rest of the year. In addition, we are also pleasantly surprised by the long term contract awarded to SKD Alliance.

• We estimate SAKP’s current outstanding orderbook (excluding JCEs) amounts to RM11.1bn, which translates to 1.1x historical FY16 revenue.

Impact

• We effect the following changes to our forecasts:- 1) increase utilization of SKD Alliance to 100% in FY17 (previous: 50%), and 2) raise FY17 orderbook replenishment assumptions to RM3bn (previous: RM2.3bn). As a result, our forecasts for FY17/18/19 are tweaked by 8%/7%/3%.

Valuation

• Due to improved orderbook prospects and signs of oil price stabilizing, we upgrade our target multiple on SAKP to 0.9x (previous: 0.8x). This is also underpinned by expectations that asset impairments will ease moving forward following oil production cuts from OPEC and non-OPEC nations.

• Following this, our target price for SAKP is raised to RM1.92 (previous: RM1.71). Maintain Hold.

Source: TA Research - 10 Jan 2017