Sapura Energy’s second contract win in FY19 garners approval
KUCHING: Sapura Energy Bhd’s (Sapura Energy) second contract win in financial year 2019 ( FY19) has garnered approval from analysts.
In a filing to Bursa Malaysia, Sapura Energy announced that wholly- owned subsidiary, Sapura Fabrication Sdn Bhd has been awarded a contract from Mubadala Petroleum ( MDC Oil & Gas (SK 320) Ltd) to undertake engineering, procurement, construction, installation and commissioning ( EPCIC) works for the Pegaga Development Project.
“The contract scope of work comprises of engineering, procurement, construction, installation and commissioning of an offshore integrated central gas processing platform ( ICPP) facility in Block SK320, offshore waters of Sarawak, Malaysia.
“The works are expected to be completed by third quarter of 2021,” the filing read.
The research arm of Kenanga Investment Bank Bhd ( Kenanga Research) was positive on this second contract win in FY19, which demonstrated Sapura Energy’s “ability to win contract continuously amidst the competitive environment”.
“We estimate the EPCIC contract value to worth up to RM2 billion, doubling the 19,000 metric-tonne weighted Bokor’s CPP, which is valued at RM1 billion,” Kenanga Research said.
The research arm reckoned the project earnings before interest, tax, depreciation and amortisation ( EBITDA) margin to match Sapura Energy’s first nine months of 2018 ( 9M18) engineering and construction ( E& C) performances at 15 per cent, anticipating RM100 million EBITDA per annum (circa eight per cent of its FY19 estimates).
Although it is pre-mature to assess the impact of the exercise given that ultimately, pricing is key, Kenanga Research was positively skewed towards this exercise.
This was because the exercise could monetise Sapura Energy’s gas fields, whereby seven to 10 trillion cubic feet (tcf) has been discovered in SK310 and SK408 post acquisition of Newfields oil and gas blocks backed in Oct 2013, to fund the development of SK408
The exercise could also ease some pressure on the group’s balance sheet of 1.26-fold as at endthird quarter of 2018 (3Q18).
Meanwhile, the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) noted that year-to- date, Sapura Energy’s share price has declined by approximately 25 per cent year to date ( YTD).
“This is despite stable crude oil prices in the tight range of US$ 60-70 per barrel ( pb),” MIDF Research said.
“We are of the opinion that the current broad-market sell off presents trading opportunities for investors seeking exposure in oil and gas service providers with direct upstream exposure.
“Although we acknowledge that Sapura Energy’s profitability might still be weak due to its other underperforming segment, we believe that the share offers short term trading opportunities for investors.”