Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily on November 23, 2018

Sapura Energy Bhd
(Nov 22, 36 sen)
Maintain trading buy with an unchanged target price (TP) of 81 sen:
Sapura Energy Bhd has strengthened its presence in Mexico and Malaysia, with three new contracts being awarded with a combined value of RM1.75 billion.

These wins are undoubtedly positive to the group as it ensures earnings visibility for the next three years.

Inclusive of these contracts, the group has secured a total of RM7 billion worth of new jobs thus far this year, surpassing our financial year 2019 (FY19) order book assumption of RM6 billion by 17%.

These new contracts have pushed its balance in hand to aroung RM18 billion, translating into around 3.6 times its FY18 engineering and construction, and drilling revenue.

We make no adjustment to our earnings estimates at this juncture pending its third quarter ended Oct 31, 2018 (3QFY19) results announcement while also assuming contribution to FY19 earnings as negligible.

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 comprise of: i) two engineering, procurement, construction, transportation and installation contracts in Mexico for Hokchi Energy SA de CV and ENI Mexico S de RL de CV;  and ii) a contract in Malaysia for pan-Malaysia underwater services for petroleum arrangement contractors (Package C) from four different parties.

There are no values provided for each contract, though the combined value for all three contracts are expected to be around RM1.75 billion with completion up to the third quarter of 2023.

Inclusive of these contracts, Sapura Energy has successfully secured a total of RM7 billion worth of contracts thus far year to date — surpassing our FY19 order book replenishment target of RM6 billion, pushing its balance in hand to RM18 billion, which will keep it busy over the next three years.

The group’s tender book remains strong, growing from US$2.5 billion in FY17 to US$7.4 billion (RM31.01 billion) at present with additional prospects of US$10.2 billion for this year.

We reckon the three contracts could fetch varied profit margins at a range of between 10% and 20% at earnings before interest and tax levels. — PublicInvest Research, Nov 22

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