Sapura Energy announced that it has been awarded multiple contracts in four different countries – Malaysia, Australia, Brunei and Nigeria with a combined value of c.RM815m. 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 utilization of its fabrication yard and drilling rigs. Inclusive of these contracts, the Group has secured a total of RM5.3bn worth of new contracts thus far this year, hence pushing its balance orderbook in hand to c.RM17.5bn. We make no adjustment to our earnings estimates, having already accounted for it in our yearly replenishment assumption of RM6bn. Therefore, our Trading Buy call is maintained with an unchanged TP of RM0.81. Our TP will however be lowered to RM0.46 post 50% divestment of its E&P stake and issuance of rights and RCPS-i, and RM0.38 upon full exercise of both RCPS-i and warrants.

• The contracts are for its E&C and drilling segments across four countries (Malaysia, Australia, Brunei and Nigeria) in the upstream value chain, with a combined value of RM815m. Details are in Table 1.

• Orderbook jumps to RM17.5bn. Inclusive of these contracts, Sapura has successfully secured a total of RM5.3bn worth of contracts thus far year-to date – accounting for 88% of our FY19 orderbook replenishment target, pushing its balance order book in hand to RM17.5bn which will keep them busy over the next three years. The Group’s tender book remains strong, growing from USD2.5bn in FY17 to USD7.4bn at present with additional prospects of USD10.2bn for this year.

• Financial impact. We keep our estimates unchanged as we have assumed these contracts in our annual orderbook replenishment assumption of RM6bn. Project margins could vary at mid-to-high single digit levels.

• Maintain Trading Buy. We maintain our Trading Buy call with an unchanged TP of RM0.81. It is however be lowered to RM0.46 upon divestment of the 50% stake in its E&P business and issuance of rights and RCPS-i, and RM0.38 upon full exercise of both RCPS-i and warrants.

• 2QFY19 results. 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.

Source: PublicInvest Research - 25 Sept 2018