Contract wins a good start to SapurnaKencana’s year — Analysts
KUCHING: Analysts applaud SapurnaKencana Petroleum Bhd (SapurnaKencana) for garnering contracts with combined value of about RM1.34 billion.
The research arm of TA Securities Holdings Bhd ( TA Research) said this might be a prelude to an improving contract momentum for the rest of the year.
Currently, SapurnaKencana’s outstanding orderbook stands at RM11.1 billion, translating to 1.1 times of historical FY16 revenue.
“Details of the new contracts indicate that majority of the contracts are within the Engineering and Construction (E&C) segment as they consist of the provision of underwater services for Petronas Carigali Sdn Bhd (PCSB); provision soil investigation services for PCSB; offshore installation work for Hyundai Heavy Industries; transportation and installation (T&I) of pipeline, subsctucture and topside for Repsol Oil and Gas Malaysia Ltd,” it said in a report.
In addition to these contracts, the group also obtained a drilling contract from Brunei Shell Petroleum Sdn Bhd to utilise SKD Alliance, one of the group’s semi tender assist drilling rig.
The tenure of the contract is for five years with an option to extend for another five years. Due to the length of the tenure, there is positive consensus amongst analysts as it will give SapurnaKencana earnings visibility in the long-term.
While no details of the contract values have been disclosed yet, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) estimated that the daily charter rate for SKD Alliance is likely to hover around US$130,000 per day. This puts the value of the drilling contract at over US$200 million.
Looking at the group’s T& I segment, HongLeong Investment Bank Bhd’s research arm, HLIB Research, opined that there is “little threat of a premature contract termination for the company in the near-term.”
The research arm explained the rationale behind this view, commenting that, “All SapurnaKencana vessels that working for Petrobras Brasileiro S. A are still operating at full utilisation, showcasing the client’s confidence in the group’s service despite slowdown in the industry.”
Additionally, the research also expects more T&I jobs to be announced in 2017 from the Pan Malaysia T&I umbrella contract packages awarded back in 2016.
Moreover, due to firmer oil prices outlook in 2017 and the potential monetisation of SapurnaKencana’s gas field (SK408) beyond 2018, analysts have turned more positive towards the company due to its higher earnings potential and improved orderbook prospects.
TA Research maintained its ‘Hold’ rating on the stock with a raised target price (TP) of RM1.92, similarly, HLIB Research also maintains its ‘Hold’ rating with an upgraded TP of RM1.80 based on higher FY18 price- to- book valuation (PBV) of 0.8 times from 0.7 times previously.
On the other hand, Kenanga Research has left its ‘Outperform’ call and TP of RM1.88 unchanged. The research arm explains this decision, noting that its TP which is pegged to 0.9 times FY18E PBV is higher than the current sector valuation of 0.6 times PBV.
“We believe a higher premium is warranted to encapsulate its longterm position as an integrated service player as well as a gas producer with decent gas reserve,” added the research arm.