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Tuesday, July 26, 2016

Brokers Report: SAPURAKENCANA - New award from Pemex

Reaffirmed Outperform with target price (TP) of RM1.90

SapuraKencana Petroleum’s (SAKP) wholly-owned subsidiary SapuraKencana Mexicana S.A.P.I. de C.V. has been awarded a USD113m (c.RM461m) contract by Pemex Exploración y Producción for an approximate 8-9 months duration. 

The award is for the procurement and construction of a 36-inch by 18km sour gas pipeline (KMZ – 76) from platform E – KU – A2 to Platform CA – AJ – 1(J4) in Ciudad del Carmen, Campeche, Mexico. 

We are pleased with this announcement as the award underpins the Group’s progress in Mexico, having first initiated its local operations in May 2015. Aside from providing contract replenishment and moreover enhancing earnings visibility to the Group, the contract concedes that SAKP’s execution capabilities are intact and is poised for more jobs in the region going forward. Our Outperform recommendation on SAKP is thus reaffirmed, with a TP of RM1.90 based on our blended SOP valuation.

Contract details. The scope for work includes transportation and installation of pipelines, crossings, topside modifications and subsea works, including procurement management. The activities are scheduled to commence in July and to last until March 2017. The award is sufficiently accounted for in our contract replenishment assumptions. The Group’s robust order book stands at c.RM20.3bn as at end-April 2016.

Pemex Exploración y Producción is the exploration and production arm of Mexico’s state-owned petroleum company, Pemex. SAKP established their presence in Mexico since May 2015, when they were awarded a c.RM300m-500m job for the installation of structures and superstructures of fixed marine platforms, pipelaying and lifting of major power generation equipment from Pemex. Today, they have received a USD113m contract, a similar size award, supporting the Group’s ability amidst the weaker oil price landscape.

Outperform. We continue to like SAKP for its growth going forward which is supported by its engineering and construction (E&C) division with long-term contracts for its offshore construction and subsea activities such as the deepwater pipelay support vessels (PLSV) for Petroleo Brasileiro S.A. (Petrobras) coupled with ongoing contracts in areas of fabrication, hook-up and commissioning (HUC) and for the longer term its energy portfolio comprising a total of c.9-10 TCF of gross gas reserves and resources in SK310 & SK408.

Source: PublicInvest Research, 26 July 2016

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