News

• SapuraKencana has been awarded contracts worth a total of value up to US$269m or RM969m.

• The details are as below: i) Installation of platforms and pipelaying and li fting jobs in Mexico worth between US$41.2m and US$98.1m; ii) Transportation and installation of gas pipeline in Indonesia worth US$97.5m; and iii) Transportation and installation works in Vietnam and India worth US$73.5m Financial impact

• These contracts win will expand orderbook from RM26bn to RM27bn (circa 2.7x FY01/15 revenue).

• This will be part of and in line with our assumption on orderbook replenishment. We have factored in RM3.2bn contract replenishment in FY16 for FHC and OCSS division (YTD win is circa RM1bn).

Pros/Cons

• We are positive on the contract awards as this will provides solid earning visibility despite weak oil price environment.

• Current orderbook stand at RM27bn and in term of earnings visibility, circa 80% of our FY16’s forec ast has al ready been secured.

• SKPetro is currently negotiating gas sales agreement with Petronas on SK310 field and expect to commence development in 2H15 with 1st gas in 2017.

Risks

• Execution risk,
• Prolong low oil price,
• Delay in contract award.

Forecasts

• Unchanged as this will be part of our assumption for orderbook replenishment.

Rating

HOLD

Positives

• Strong balance sheet and knowhow and global trend towards offshore production.

Negatives

• Increased competition for growth markets, complexities of running a larger organization and lower oil price.

Valuation

Given share price has rebounded with limited upside, we downgrade from BUY to HOLD call with an unchanged TP of RM2.85 based on unchanged 14x CY16 EPS of 20.4 sen/share.

Source: Hong Leong Investment Bank Research - 12 May 2015