Target RM6.73 (Stock Rating: ADD) 

 

SapuraKencana is ending 2013 with a bang by securing two packages of the T&I contract awarded by Petronas. While we are encouraged by this win, we are more excited by the ongoing Newfield acquisition, which is set to put SapuraKencana in a new growth sphere. We continue to value the stock at 22.5x CY15 P/E, a 40% premium over our implied market target of 16.1x but still within the historical P/E range of the oil & gas big-caps. We maintain our Add call, with the Newfield purchase and strong order book momentum as major re-rating catalysts. SapuraKencana is our top pick among the oil & gas big-caps.

 

We continue to value the stock at 22.5x CY15 P/E, a 40% premium over our implied market target of 16.1x but still within the historical P/E range of the oil & gas big-caps. We maintain our Add call, with the Newfield purchase and strong order book momentum as major re-rating catalysts. SapuraKencana is our top pick among the oil & gas big-caps. 

 

What Happened 

Petronas has awarded a contract covering transport and installation (T&I) activities for a period of three years commencing 2014 to TL Offshore, PBJV and GOM Resources, which are wholly-owned units of SapuraKencana, Barakah and Puncak Niaga, respectively. The total work value is almost RM10bn, spread over four packages - A, B, C and D. 

 

What We Think 

The announcement was not a surprise to us. A contract incumbent, SapuraKencana was widely expected to clinch packages C and D. The company was the winner of three out of four packages (the remaining one was secured by GOM) under the first 3+1 contract, which was awarded in Dec 2009. The breakdown of the total work value was not disclosed but we estimate SapuraKencana's two packages to be worth RM5.4bn, taking its order book to around RM28bn, the sector's largest. The T&I job is no doubt sizeable but, spread over three years and in the bigger scheme of things, it is not expected to move the needle significantly for the company given its two transformative exercises, which are the Seadrill and Newfield acquisitions. We view the T&I job as a continuation of the first one that was awarded in 2009. 

 

What You Should Do 

Accumulate the stock and ride SapuraKencana's strong earnings thrust brought about by the Seadrill and Newfield acquisitions, the main drivers behind the stock's 3-year EPS CAGR of 43%, which is almost double the sector average of 22%.

 

Source: CIMB Daybreak - 17 December 2013, Full PDF Report