Job wins seen providing 2-year earnings visibility for Sapura Energy

Sapura Energy Bhd (Jan 8, 29.5 sen)

Maintain outperform with an unchanged target price of 46 sen: Sapura Energy Bhd reported that it had secured five contracts including two extensions for its drilling and engineering and construction (E&C) segment in Malaysia and Angola with a combined value of RM760 million. These contract wins are certainly positive to the group as it helps to increase the group’s rig and fabrication yard utilisation, ensuring earnings visibility for the next two years. 

Inclusive of these contracts, we estimate that the group has secured a total of RM9.3 billion worth of new contracts for this financial year, pushing its balance order book in hand to about RM19.4 billion, surpassing its financial year 2017 (FY17) and FY18 year-end balance order books, which will keep them busy over the next three years. We have made no adjustment to our estimates as we see this as part of our FY20 order book replenishment.

The contracts comprise: i) three drilling contracts, including two extensions in Angola and Malaysia for Chevron Corp, Sabah and Sarawak Shell as well as Petronas Carigali Sdn Bhd; and ii) two E&C contracts in Malaysia for Petronas Floating LNG 1 (L) Ltd and Hess Exploration and Production Malaysia BV. There are no values provided for each contract, though the combined values for all five contracts are expected to be around RM760 million with completion of up to the second quarter of FY22.

The strong job wins have been the highest in three years. The group’s tender book remains strong, growing from US$2.5 billion (RM10.3 billion) for FY17 to US$8.8 billion at present with additional prospects of US$14.3 billion for this calendar year, a testament to the fact that global oil and gas activities have been growing.

We reckon that the contracts could fetch varied profit margins from high single digits to mid-teen ranges at the earnings before interest and tax level. — PublicInvest Research, Jan 8

This article first appeared in The Edge Financial Daily, on Jan 9, 2019.

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