SapuraKencana Petroleum : Multiple contract awards still within expectations HOLD

STOCK FOCUS OF THE DAY

SapuraKencana Petroleum : Multiple contract awards still within expectations    HOLD

We maintain our HOLD recommendation on SapuraKencana Petroleum with an unchanged fair value of RM1.40/share based on FY17F book value, which includes a 50% discount on the group’s intangible asset value.  As the new contracts awarded are within our order assumptions, our forecasts are unchanged pending the announcement of the group’s 2QFY17 later this month.

SapuraKencana has secured 5 awards amounting to US$65mil (RM264mil): (1)Transport and install offshore facilities within 1 month for BOC-BOD Pipeline Replacement Tie-in Project from Repsol Oil and Gas Malaysia Limited (formerly Talisman), involving subsea tie-in of spools at Bunga Orkid Development in the Northern field of PM3 Commercial Arrangement Area, North-East of Peninsular Malaysia, bordering Vietnam and Thailand, (2) Demobilisation and offloading of MISC’s Floating Storage and Offloading (FSO) located 320km offshore of Kertih, Terengganu, Malaysia in the ABU cluster field at Block PM-318 within 5 months with an optional scope for towing the FSO and installing a temporary mooring arrangement at the lay-up area, (3) Offshore installation of LQ jacket, piles and appurtenances (base scope) and module 1 (optional scope) at Su Tu Trang Field, Vietnam within 3 months for PTSC Offshore Services Joint Stock Company, (4) Transport and install pipeline, substructure and topside for Petronas Carigali’s F12 Gas Development Project, 180km offshore of North West of Bintulu, Sarawak within 8 months, and

(5) Transport and install one new pipeline from Tapis Q to Guntong C from March 2017 to May 2017 from ExxonMobil Exploration and Production Malaysia Inc.

As we had reported on 8 August, the Su Tu Trang contract was expected, as the group had taken over from financially distressed Swiber. We also expect the award of another Swiber’s contract for the Zawtika gas project off Myanmar. This involves two wellhead platforms for Zawtika phase 1C, which comes with two platform options. From the awards officially announced to date, SapuraKencana’s new order book wins this year could reach RM3.4bil, which would form 57% of our FY17F order replenishment assumption of RM6bil. This translates to an estimated group order book of RM21.6bil - 3.2x FY17F revenue. The stock currently trades at a 25% discount to book value due to its weak near-term earnings outlook and high net gearing.

Others :

Plantation Sector : 2Q2016 Earnings Review         NEUTRAL

ECONOMIC HIGHLIGHTS

Malaysia : Expect Manufacturing PMI to remain in the negative region

Japan : BOJ is still under pressure to stimulate economy

US : Is the ISM Manufacturing PMI dip temporary?

NEWS HIGHLIGHTS

Kossan Rubber Industries : Launches patented ‘low derma’ synthetic gloves

Property Sector : DRealty eyes property development tie-up with HK-listed firm

Conglomerate : Boustead’s MHS Aviation seeks RM42.7m in damages from Petronas Carigali