SAPURA ENERGY BHD

By AmInvestment Bank Buy (maintain)

Fair value: RM1

AMINVESTMENT Bank is maintaining its “buy” recommendation on Sapura Energy Bhd, given the attractive upside potential to its unchanged fair value of RM1 based on a 50% discount to the company’s 2019 book value.

“Our forecasts are maintained as we have already assumed RM7bil of new orders for 2019 even though Sapura has secured the engineering, procurement, construction, installation and commissioning (EPCIC) contract for the Pegaga integrated central gas processing platform (CPP) facility in Block SK320, in the offshore waters of Sarawak.”

The research house said the CPP, designed to handle 550 million cu ft of gas per day plus condensate, is in a production field operated by Mubadala Petroleum, which has a 55% interest, with Petronas Carigali holding 25% stake and Shell 20%.

“As the works are expected to be completed by the third quarter of 2021, we do not expect any significant earnings contribution from this contract in 2019.”

AmInvestment Bank said while the announcement did not reveal the contract value, it understood that the whole EPCIC scope could reach RM2bil, which would wholly accrue to Sapura’s bottomline – as there is no joint venture with an engineering company similar to MMHETechnip’s model.

“Including this new contract plus the RM905mil contracts which Sapura announced last month, the group has achieved 41% of our 2019 order book assumption.

“Besides this contract, we understand that there may be another CPP project in India and three more wellhead platform construction contracts for the SK408 field in the pipeline.”

The research house said it expected operating losses and impairment charges in the group’s fourth-quarter 2018 results, which will be announced on March 28.

“However, the impairments are unlikely to lead to a reduction of over 20% of the group’s book value, as Sapura’s RM8bil of intangible assets are unlikely to be substantively devalued, given their ongoing business prospects.”