UAE job win could help build Sapura Energy’s track record

Sapura Energy Bhd
(Feb 20, 24 sen)
Maintain outperform with an unchanged target price (TP) of 33 sen:The press reported that Sapura Energy Bhd, via its partnership with Petrofrac Emirates LLC, had secured a contract from the Abu Dhabi National Oil Company for the Dalma Gas Development Project.

The scope of work includes engineering, procurement, fabrication, transportation, construction, installation, testing and commissioning of all offshore facilities, several well head platforms, 189km of subsea pipelines, cables and umbilical forming the Dalma Gas Development Project.

We are positive on the new win, with this being Sapura Energy’s first job in the United Arab Emirates (UAE). According to Upstream, the contract is worth US$591 million (RM2.47 billion). Assuming a 50:50 partnership, Sapura Energy’s stake would thus be worth US$296 million. Considering the competition, having successfully fought off McDermott International and Saipem which were thought to be contending bidders, we believe margins for the project could be around the low-teen percentages. This also represents Sapura Energy’s first known contract win in the financial year ending Jan 31, 2021 (FY21), bringing its order book to a guesstimated value of about RM16 billion. The win could also help build Sapura Energy’s track record in the region, enabling further job wins in the future.

We maintain “outperform”, with an unchanged TP of 33 sen, pegged at 0.4 times FY20E (estimated) price-to-book value (P/BV). No changes are made to our FY20-21E numbers as the job win is still within our FY21E order book replenishment assumption of RM5 billion.

Our “outperform” call is premised on the stock currently trading at floor valuations of merely 0.3 times P/BV and below its rights issue exercise price of 30 sen. We believe an earnings turnaround is a long-term eventuality, with all the fundamental building blocks gradually put in place. —Kenanga Research,Feb 20