Affin Hwang Research said across the value chain, production players will be the first to benefit from higher oil prices due to their oil-producing fields.
KUALA LUMPUR: RHB Research is retaining a Buy call for Sapura Energy
after it secured four contracts worth US$206mil, all coming from its engineering & construction (E&C) segment.
It said on Friday the E&C segment would continue to be the main earnings driver.
“We adjust our earnings higher by 10% and 3% for FY18 and FY19 respectively, as the amount came in more than our orderbook replenishment buffer.
“We continue to be positive on Sapura Energy as its two main segments – E&C and energy – are firing as intended, while downside risk to drilling is limited. Maintain Buy with a higher sum-of-parts based target price of RM2.50 (from RM2.30, 39% upside),” it said.
RHB Research said Sapura Energy was awarded four contracts worth US$205.96mil in total for its E&C segment.
The contracts are all from foreign oil operators, which we believe is a positive indication that the company is not just dependent on Petronas for projects.
Sapura Energy won two contracts from PTT Exploration & Production. The first is for the engineering, procurement, construction and installation (EPCI) of wellhead platforms, pipelines and tie-ins for the Zawtika field development in Myanmar.
The second is for intervention work in the Montara field in the Timor Sea. The third contract is from Oil & Gas Corp (ONGC) for transport & installation (T&I) balance subsea works, while the fourth contract is from Brunei Shell Petroleum Co (Brunei Shell) for a single point mooring replacement works.
RHB Research pointed out Sapura Energy has managed to add US$303mil worth of new contracts to its orderbook – all coming from the E&C segment.
“We estimate that the current E&C orderbook – ex-Brazil pipelay support vessel (PLSV) operations – stands at US$1.38bil.
“We understand that the company’s six PLSVs in Brazil are working at c.99% utilisation. In light of the better crude oil price outlook, production at the PM318, PM323 and PM329 fields are expected to be extended to the end of their production sharing contract (PSC) lives.
“Eight out of 16 of Sapura Energy’s rigs are off charter at the moment, and we have not imputed any earnings for these rigs,” it said.
RHB Research said the new contract win prompts us to increase our earnings expectation for FY18-19 by 10% and 3% respectively.
“This is because the amount came in higher than our orderbook replenishment buffer. We continue to like Sapura Energy – particularly its E&C segment – given that it is still able to demonstrate its competitiveness, even when the oil & gas industry is in a downturn. The company’s production and Brazil operations are also likely to continue generating stable earnings.
“We believe the earnings downside risk for its drilling division is limited, and surprise charter wins for its currently unutilised rigs would be positive for earnings.
“We maintain our Buy recommendation on Sapura Energy, as we increase our target price to RM2.50 (from RM2.30) following the recent contract wins. Risks to our call include lower orderbook replenishment,” it said.
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