SAPNRG was awarded seven new jobs worth RM1.85b which collectively marks as its first contract award announcement in FY22, and should raise its order-book to ~RM13b. Despite being positive on the new contracts, we still deem them to be insufficient to sustainably turn around the company into profitability at the moment. Maintain UP and TP of RM0.05.

Awarded seven new jobs worth RM1.85b. SAPNRG announced that it was awarded six new engineering and construction (E&C) jobs, and one drilling contract extension, totalling RM1.85b (refer to table below for detailed breakdown of jobs awarded).

Positive on the contract wins. Overall, we are positive on the contract wins, especially considering the current challenging environment in the oil and gas sector. These contracts mark the first awards for the group in FY22, bringing its order-book to ~RM13b. We expect these jobs to fetch roughly low-teens operating margins.

Particularly, among the jobs awarded, we are most positive on the CRPO 59 project awarded under Saudi Aramco’s long-term agreement (LTA) programme. In fact, this is the first LTA contract SAPNRG had won ever since being selected to join the program back in 2018. Additionally, with Saudi Aramco looking to further delay multiple upcoming projects under the LTA program, this further signifies the substantiality in this job win. For this job in particular, we understand that other interested bidders included China’s Offshore Oil Engineering Company, a pairing of Lamprell and Boskalis, and a grouping of TechnipFMC and locally-listed MHB.

More job wins to come? These contract wins aside, SAPNRG is also reportedly front-runners for the local Jerun platform EPCIC, potentially edging out close competition MHB. The project is largely seen as a twohorse race between the two fabricators. We expect finalisation of the job award in the coming months, with contract value of potentially >RM1b.

Maintain UNDERPERFORM, with unchanged TP of RM0.05 pegged to valuations of 0.1x PBV. No changes to our FY21-22E numbers, as the new wins fall within our FY22E contract replenishment assumption of RM5b.

Although we are positive on the contract wins, we still deem them insufficient to sustainably turn around the company into profitability for the time being. The group’s net-gearing still remains at a high of 1.1x, with ESG also being a concern with the company.

Risks to our call include: (i) better-than-expected recognition of order book and project execution margins, (ii) huge replenishment of order book, and (iii) significant improvements in cash flow and balance sheet.

Source: Kenanga Research - 11 Feb 2021