SapuraKencana Petroleum - Small Australian charter from PTTEP Buy

- We maintain our BUY call on SapuraKencana Petroleum (SapuraKencana), with an unchanged fair value of RM2.68/share, pegged to a rolled forward FY14F PE of 18x – close to the average for oil & gas stocks with a market capitalisation of over RM1bil.

- SapuraKencana has secured a AUD15mil (RM50mil) charter contract with PTTEP Australasia (Ashmore Cartier) Pty Ltd to provide one of its construction vessels named Normand Clough,  which will be used to support the hook-up  and commissioning activities of the Montara Development Project.

- We maintain SapuraKencana’s FY13F-15F earnings as the new Australian contracts are within our expectations, which incorporate new order assumptions of RM5bil-RM7bil annually.

- The contract, commencing early October 2012, will only encompass three months following Norman Clough’s current assignment in Sakhalin. Norman Clough was one of the three construction vessels which SapuraCrest Petroleum acquired from Australia-listed Clough Ltd in August last year. 

- The Montara field is located approximately 700km west of Darwin in the Timor Sea, off the coast of Northern Australia. Back in 2009, Clough was involved in the installation of offshore facilities was interrupted by a fire on the West Atlas rig and oil spill. 

- Compared with the recent Murphy contracts, this contract is relatively small and will not significantly raise SapuraKencana’s order book of RM15.6bil – the largest in the country vis-a-vis Bumi Armada’s RM10bil. Accounting for 2.5x of SapuraKencana’s CY12F merged revenues, earnings for the next two years are already locked-in.

- But we expect fresh contracts to materialise this year – two wellhead platforms from the Bunga Dahlia and Teratai fields in Blocks 301 & 302, a central processing platform and multiple wellhead platforms from the North Malay gas basin cluster development. Beginning this year, we estimate that the group has secured fresh order contracts worth RM2.6bil (including the RM1.3bil extension of the Pan-Malaysian contract to install pipelines and facilities), vs. our FY12F new order assumption of RM5bil. 

- We continue to be positive on SapuraKencana as its estimated tender book of RM10bil will continue to drive the group’s earnings momentum, underpinned by asset expansion from the delivery of two deepwater-capable construction  vessels with DP 3 capability in late-2013 to early-2014, together with three flexible pipe-lay Petrobras vessels, one tender rig and semi-tender rig at end-2014.

- SapuraKencana’s valuations are compelling at an FY14F PE of 17x compared with SapuraCrest’s peak of 29x back in 2007.The likely inclusion of the stock in the FBMKLCI later  this year could draw further foreign institutional support.  

Source: AmeSecurities