Pan Malaysia maintenance, construction and modification award made up the largest chunk for Sapura Energy’s latest contract wins.
KUCHING: Analysts give two thumbs up to Sapura Energy Bhd (Sapura Energy) being awarded four contracts – three new engineering and construction (E&C) contracts and one drilling extension contract – for a total of RM815 million.
This led the stock to become the top most active yesterday with more than 190.62 million shares being traded at closing. The share rose by one sen or 2.33 per cent to close at 44 sen per share.
Affin Hwang Investment Bank Bhd (AffinHwang Capital) calculated that with these new contracts, Sapura Energy’s total contract wins year to date amount to RM5.3 billion.
“We deem the E&C replenishment-to-date to still be within our full-year target as the total announced value also includes Sapura Energy’s self-awarded SK408 Larak and Bakong WHP, whose contract breakdown was not disclosed,” it said in its note yesterday.
“The drilling contract also falls within our FY20 blended drilling fleet utilisation-rate forecast of 54 per cent.”
Breaking down the contract awards, Kenanga Investment Bank Bhd’s research team (Kenanga Research) saw that the Pan Malaysia maintenance, construction and modification (MCM) award made up the largest chunk.
“Of the contracts announced, we believe that the Pan Malaysia MCM contract from ExxonMobil to carry the largest value, with our guesstimate at around RM400 million, although the actual value would be dependent on work orders issued as it is a call-out contract,” it said in a separate note.
Nonetheless, we are positive on the award as we gathered that this is a re-engagement of Sapura Energy by ExxonMobil in continuation of its prior maintenance contract awarded back in 2013, thus indicating its commendable job execution as well as client retention ability, while also providing additional jobs flow and earnings visibility.
“We expect margins for its earnings before interest and tax (EBIT) to be within the range of 10 to 20 per cent.”
Meanwhile, Sapura Energy’s gas pipeline contract from Saidel marks the group’s maiden entry into Nigeria, while offshore installation works for Quadrant Energy also marks its second contract win in Australia.
Its maiden win in Australia were offshore exploration contracts by Finder Exploration, announced on September 4, 2018.
“While the individual values of the contracts were not disclosed, we are overall positive on the wins as it represents the group’s continued efforts to capturing new markets, while also highlighting the group’s ability to win contracts continuously amidst a competitive environment,” Kenanga Research said.
“We expect these two jobs to fetch EBIT margins at around 15 per cent Elsewhere, extension of the drilling rig Sapura Pelaut would provide added utilisation visibility and some earnings clarity.”
In spite of the contract boost, the analysts maintained their calls on Sapura Energy for the moment, pending the group’s results release for its second quarter of financial year 2019 (2QFY19) expected sometime this week.
AffinHwang Capital reaffirmed its earnings forecast, sell rating and target price of RM0.32 per share, expecting the upcoming results to be “lukewarm.”
Kenanga Research also opted to make no changes to its current FY19-20E earnings forecasts for now, and also pending the release of its 2QFY19 results.
“Note that any further contract wins for the remainder of the year would theoretically warrant an earnings upgrade, it added.
“We maintain market perform, with unchanged ex-target price of RM0.34 per share.”