KUALA LUMPUR: Sapura Energy
's new contract wins and extensions of RM760mil brought its year-to-date wins to about RM9bil and order book to about RM19bil, marking their highest in over two years.
In its research note, Kenanga research said it is positive on the contract wins as they highlight the company's competitiveness and job-winning abilities but also signify its jobs execution quality to warrant the contract extensions.
The research house upgraded Sapura Energy to outperform with a target price of 34 sen pegged to 0.4x price-book.
Sapura Energy announced yesterday it had secured new contracts including one drilling job from Chevron Corp in Angola, and two new engineering and construction contracts from Petronas and Hess Exploration and Production Malaysia.
It also received two extensions in its drilling segment from Sarawak Shell Bhd/Sabah Shell Petroleum and Petronas Carigali.
"We expect EBIT margins for the E&C contracts to be within 10-20%, but still its drilling segment is seen to continue making losses. The new contract is also expected to lift its drilling utilisation to 8 rigs (from 7 rigs as at end- 3Q19), with another 8 rigs still being stacked," said Kenanga.
It added that Sapura Energy is poised to start anew from FY20 onwards after the injection of fresh capital of RM4bil from its capital raising efforts comprising of rights issue with warrants and RCPS-i, which is expected to be concluded by Jan 1.
Its 50% divestment of its E&P arm to OMV to raise up to US$800m is also targeted to be concluded by 1QFY20.
"All-in, this is expected to improve the company’s net-gearing to c.0.7x, from 1.7x as at end-3Q19.
"The improved post-FY20 outlook is further backed by the company’s display of healthy job flows recovery of late, which will only be further strengthened by its improved balance sheet and increased working capitals."
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