Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on September 26, 2018

Sapura Energy Bhd
(Sept 25, 44 sen)
Maintain trading buy with an unchanged target price (TP) of 81 sen:
Sapura Energy Bhd announced that it had been awarded multiple contracts in four different countries — Malaysia, Australia, Brunei and Nigeria — with a combined value of about RM815 million.

 

These contract wins are undoubtedly positive to the group as it ensures the group’s earnings visibility for the next three years, while also helping to further improve the utilisation of its fabrication yard and drilling rigs. Inclusive of these contracts, the group has secured a total of RM5.3 billion worth of new contracts thus far this year, hence pushing its balance order book in hand to about RM17.5 billion.

We make no adjustment to our earnings estimates, having already accounted for them in our yearly replenishment assumption of RM6 billion. Therefore, our “trading buy” call is maintained with an unchanged TP of 81 sen.

Our TP will, however, be lowered to 46 sen post-50% divestment of its exploration and production stake and issuance of rights and Islamic redeemable convertible preference shares (RCPS-i), and 38 sen upon full exercise of both RCPS-i and warrants.

The contracts are for its engineering and construction and drilling segments across the above-mentioned four countries in the upstream value chain, with a combined value of RM815 million.

Inclusive of these contracts, Sapura has successfully secured a total of RM5.3 billion worth of contracts thus far year to date — accounting for 88% of our FY19 order book replenishment target, pushing its balance order book in hand to RM17.5 billion which will keep them busy over the next three years.

The group’s tender book remains strong, growing from US$2.5 billion in financial year 2017 (FY17) to US$7.4 billion (RM29.54 billion) at present with additional prospects of US$10.2 billion for this year.

We keep our estimates unchanged as we have assumed these contracts in our annual order book replenishment assumption of RM6 billion. Project margins could vary at mid to high single-digit levels.

The group is expected to announce its results this week. Chances are high on a downside bias due to prolonged losses in its drilling segment which we expect may take some time to recover despite improvement in activity.

We maintain our forecasts nonetheless pending result release. — PublicInvest Research, Sept 25

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