Analysts mixed on SapKen’s RM264mil contracts

SapKen said the contract was for the procurement and construction of a 36 inch 18km sour gas pipeline linking two platforms in Ciudad del Carmen, Campeche, Mexico. It said that the scope of work comprises transportation and installation of pipelines, crossings, top side modifications and subsea works, including procurement and project management.

PETALING JAYA: The slew of engineering and construction contracts worth US$65.3mil (RM264mil) bagged by SapuraKencana Petroleum Bhd (SapKen) unit SapuraKencana TL Offshore Sdn Bhd recently have received mixed reviews from analysts, although generally they deemed it positive for the oil and gas company.

The five contracts, which range from one to eight months’ duration, include Repsol Oil and Gas Malaysia Ltd’s BOC-BOD Pipeline Replacement Tie-in project to provide Transportation and Installation (T&I) of Offshore Facilities, the Demobilisation of Floating Storage and Offloading (FSO) ABU project for MISC Offshore Floating Terminals (L) Ltd and PTSC Offshore Services Joint Stock Company’s Offshore Installation for LQ Jacket, Piles and Appurtenances (base scope) and Module 1 (optional scope) for Su Tu Trang Field in Vietnam.

The fourth and fifth contracts include Petronas Carigali Sdn Bhd’s F12 Gas Development project to provide T&I of Pipeline, Substructure and Topside as well as ExxonMobil Exploration and Production Malaysia Inc’s Guntong Pipelay Project.

AmInvestment Bank (AmInvest) kept its “hold” call on SapKen with an unchanged fair value of RM1.40/share based on financial year 2017 (FY17) forecast book value, which includes a 50% discount on the group’s intangible asset value.

Since the new contracts were within AmInvest’s order assumptions, it maintained its forecasts pending the conglomerate’s second quarter FY17 results later this month.

“The Su Tu Trang contract was expected, as SapKen had taken over from financially distressed Swiber.

“We also expect another Swiber’s contract award for the Zawtika gas projecr off Myanmar, which involves two wellhead platforms for Zawtika phase 1C. This comes with two platform options,” said AmInvest in its published report.

SapKen’s could hit a new order book of RM3.4bil with the new awards, AmInvest noted.

“This would form 57% of our FY17 forecast order replenishment projection of RM6bil, which translates to an estimated group order book of RM21.6bil, or 3.2 times FY17 forecast revenue,” said AmInvest, adding that the stock now traded at a 25% discount to book value due to its weak near-term earnings outlook and high net gearing.

Meanwhile, MIDF Research reverted the stock to “neutral” rating from a “trading buy” previously with an unchanged target price of RM1.71. MIDF said SapKen’s share price weakness gave rise to short term trading opportunities as fundamentals remain strong. With current total order book at approximately RM21bil, the group has announced about RM2.3bil worth of jobs for FY17, it noted.

“About RM5.1bil is projected to be recognised in FY17, a further RM4bil to be recognised in FY18 and the remaining RM11bil to be seen in FY19 and beyond,” it said.

At current prices, MIDF believed that there might just be more than 10% upside left and with oil price at stable levels of USD45 to US$50 per barrel, SapKen’s fundamentals improved.

AllianceDBS Research maintained its “fully valued” call and sum-of-parts based target price unchanged at RM1.16, given that SapKen’s current valuation was lofty in its view and that any further re-rating was unlikely in the near term.

While the research house was positive on the contract wins, it was rather neutral on the latest batch of contract, which were small in value.

Including these contracts, SapKen’s total contract wins announced for FY17 amounted to RM3.3bil, with total order book estimated at RM21.5bil, AllianceDBS said, adding that the contract flows reflected the firm’s ability to outbid its peers in a highly challenging landscape.

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