AmWatch - SapuraKencana Petroleum : PLSV Sapura Diamante starts operation BUY, 3 Jul 2014

STOCK FOCUS OF THE DAY

SapuraKencana Petroleum : PLSV Sapura Diamante starts operation        BUY

We maintain BUY on SapuraKencana Petroleum (SapuraKencana), with an unchanged fair value of RM5.70/share. Our FY15F-FY17F earnings are unchanged.

The group announced that its 50%-owned Sapura Diamante, a pipe-laying support vessel (PLSV) has started operations in Brazil’s pre-salt fields on 28 June 2014 – over three months ahead of the original contractual delivery date.

This is not surprising as our earlier checks with management had indicated that the first PLSV in Brazil would be delivered in July this year. While the group will be able to fast-track the earnings from this PLSV, there will be no early-delivery bonus incentive earned due to the delivery of the 350-tonne Sapura Esmerelda, which was originally being built in Brazil, being delayed by 18 months.

The Brazilian shipyard, OSX Shipyard had since filed for bankruptcy. Hence, the construction of Sapura Esmerelda had been assigned to IHC Merwede in Netherlands, which is building all six PLSVs ordered by the group’s 50%-owned Sapura Navegacao Maritima. Seadrill owns the remaining 50% stake in Sapura Navegacao Maritima. Recall that SapuraKencana has secured a US$1.4bil (RM4.5bil) 5-year firm pipe-lay support vessel charter contract in November 2011 and another US$2.7bil 8+8 year charter in June 2013, both from Petrobras.

We are positive on the group’s adaptability in renegotiating its contracts with a major foreign national oil company on a win-win basis for both parties. Since the beginning of 2014, the group has secured RM6bil in new contract awards. The group’s order book stands at RM30bil (2.7x of FY15F revenue) and remains the largest within the O&G sector – above Bumi Armada’s firm orders of RM22.7bil.

We remain positive on the group’s order book accretion and it remains on the prowl for fresh tenders of RM30bil.

Others :

Eco World : Acquires land 5km from Eco Majestic              BUY

QUICK TAKE

Construction Sector : Road collapse not related to MRT works    NEUTRAL

NEWS HIGHLIGHTS

Tenaga Nasional : Sees power demand surging in Johor

Malaysian Airline System : May be taken private for restructuring

Sime Darby : No talks between Axis REIT Managers and Sime