SapuraKencana  Petroleum  (SAKP)  announced  yesterday  that  it  has secured  a  letter  of  award  from  Trans  Thai-Malaysia  to  provide engineering,  procurement,  construction,  installation  and commissioning  (EPCIC)  services  to  the  latter’s  JDA  Gas  Balancing Evacuation  Project.  We  are  positive  on  the  USD180.7m  contract,  but make no changes to our earnings estimates. Maintain BUY, with our FV unchanged at MYR4.96, pegged to 22x FY15 EPS.

- USD180.7m contract. SAKP informed Bursa Malaysia yesterday that its wholly-owned subsidiary, Kencana HL SB, has received a letter of award from Trans Thai-Malaysia for the provision of EPCIC services valued at around USD180.7m, or MYR576.4m (USD1:MYR3.19).

- No change to earnings estimates. We gather from the announcement that the contract is for a period of three years and works are expected to commence in 2Q13 for completion by 1Q16. This means that SAKP will likely  book  some  MYR52.4m  in  revenue  per  quarter  over  the  next  11 quarters,  assuming  even  contributions  per  quarter.  Assuming  an  8% margin,  the  contract  is  expected  to  contribute  some  MYR16m  per annum,  which  is  less  than  2%  of  our  full-year  estimates.  Hence,  we make no changes to our earnings estimates.

- Maintain BUY. We retain our BUY recommendation on SAKP given the group’s strong medium-term  earnings  prospects.  We  are  projecting  a FY13-FY16  net  profit  CAGR of  41.9%  backed  by:  i) a  strong  orderbook of  MYR25.9bn,  ii)  potential  MYR3bn  worth  of  transportation  and installation  contracts  in  the  Pan-Malaysia  fields,  iii)  MYR1bn-MYR2bn worth  of  subsea  contracts,  and  iv)  new  EPCIC  and  enhanced  oil recovery  (EOR)  developments.  Our  FV  is  unchanged  at  MYR4.96, pegged to 22x FY15 EPS.

Source: RHB