AmWatch - SapuraKencana Petroleum : RM1bil contracts support re-rating catalysts BUY, 16 May 2014

STOCK FOCUS OF THE DAY

SapuraKencana Petroleum : RM1bil contracts support re-rating catalysts               BUY

We maintain our BUY recommendation on SapuraKencana Petroleum with an unchanged fair value of RM5.70/share, based on an FY15 PE of 22x. Our FY15F-FY17F earnings, which has already accounted for new contract replenishments, are unchanged.

The group has announced 5 major contract awards worth US$312mil (RM1bil) as follow:- (i) Charter worth US$90mil for tender-assisted drilling rig ‘SKD T-20’ by CNR International to be employed in the Espoir field. SKD T-20’s daily charter rate of US$246k compares favourably with the US$225k daily charter for SKD Setia tender rig in Angola, also in West Africa.

(ii) Charter worth US$11mil from Heerema Marine Contractors Nederland (HMC) for the group’s wholly-owned derrick lay vessel SK1200. This contract, which is for a firm 55 days plus an option for 15 daily extensions, is for the transportation of Exxon’s Temporary Living Quarters in the Arkutun-Dagi project in Sakhalin, Russia.

(iii) T&I contract worth US$59mil from Larsen & Toubro Ltd involving the British Gas Exploration & Production India Limited Mukta B Platform and Pipeline Project.

(iv)Subsea contract worth US$100mil for the group’s 50%-owned SapuraAcergy Sdn Bhd for the Maharaja Lela South Project by TOTAL E&P Borneo B.V. This comprises engineering, procurement, supply, construction, pre-commissioning, T&I for offshore platform and pipeline works.

(v) 2-year fabrication contract to build a well-head platform for the Layang Development (Facilities) Project by JX Nippon Oil & Gas Exploration (Malaysia) Limited, with completion in 2Q2016.

These new contracts reaffirm our positive outlook on SapuraKencana’s prospects, which is further supported by the group’s game-changing US$898mil (RM2.8bil) acquisition of Newfield International’s oil & gas production blocks in Peninsula Malaysia, Sabah and Sarawak. The stock currently trades at an attractive FY15F PE of 17x - a 41% discount to SapuraCrest Petroleum’s peak of 29x in 2007.

Others :

Malaysia Building Society : Making headway in corporate loans segment               HOLD

Dialog Group : Expect a stronger 4QFY14               HOLD

NEWS HIGHLIGHTS

Malaysian Airline System : Further into the red

Star Publications : Makes MSCI Global Small Cap Index list

DiGi.Com : Lars-Ake Norling is the new CEO

Consumer Sector : Aeon will go to Kuching and Kota Baru by 2016

Power Sector : Cabinet approves Project 4A which is to be awarded through direct negotiations

Construction Sector : Output to surpass last year’s RM93bil