SapuraKencana Petroleum - Secures Kamelia platform job and undersea services Hold

- We maintain our HOLD recommendation on SapuraKencana Petroleum (SapuraKencana), with an unchanged fair value of RM2.60/share, which is pegged to an FY14F PE of 18x– 20% above the oil & gas sector’s 15x currently. 

- SapuraKencana has secured two contracts worth RM836mil as follows:- 

1) RM136mil from HESS Exploration and Production Malaysia B.V. to provide engineering, procurement, construction and commissioning services for Kamelia-A Wellhead Platform for Early Production System of the Integrated Gas Development Project  in the North Malay Basin Field with completion in 1Q2013, and 

2) RM700mil to provide underwater services from Petronas Carigali Sdn Bhd to SapuraKencana’s wholly-owned Allied Marine & Equipment Sdn Bhd. These include inspection, repair and maintenance services utilising specialised vessels, equipment and personnel for Petronas Carigali’s offshore oil and gas fields in Malaysia from Petronas Carigali Sdn Bhd.

- The two contracts are not a surprise as we had indicated in our past reports. We noted that the group has already been working on the Kamelia fabrication job since early this year even though a formal award had not been announced.

- Also, the underwater contract value is 17% above the earlier guided tender value of RM600mil for 3 years, but we note that the duration of the contract encompasses 3.5 years effective from October this year until April 2016, with an option to extend for another year. This award was expected as Allied Marine & Equipment is the current incumbent provider of these services to Petronas Carigali for the past 3 years.

- We maintain SapuraKencana’s FY13F-FY15F earnings as the two contracts are well within our new order assumptions of RM5bil-RM7bil. These two contracts increase SapuraKencana’s new order book secured so far in 2012 by 26% to RM4bil, which is within our expectation of RM6bil for this year. Besides the underwater contract, the group is also tendering for the RM8bil-RM10bil Pan-Malaysian umbrella hook-up, construction and commissioning contract. 

- As such, we expect a higher magnitude of newsflow for hookup, construction and commissioning (HUCC) works vs. pure fabrication jobs for the rest of the year. The large central processing platform and multiple wellhead platforms for the North Malay gas basin Phase 2 development, and the Bokor, Dulang and Semarang fields may only materialise next year. 

- SapuraKencana’s valuations are currently fair at an FY14F PE of 18x, which is at a 5% premium to the sector’s 17x. We also do not discount the possibility of Seadrill disposing of its remaining 6% in SapuraKencana to fund its asset expansion in PP 12247/06/2013 (032380) Brazil.  

Source: AmeSecurities