(Dec 1, RM2.80)
Maintain outperform at RM2.65 with fair value of RM3.34: Sapuracrest announced on Nov 30 its SapuraAcergy venture had won a contract from PTTEP Australasia (Ashmore Cartier) Pty Ltd (PTTEPAAA) worth US$160 million (RM506.4 million) for the provision of offshore transport and construction for PTTEPAAA’s Montara Development Project in Australia. The job is expected to be executed in 2011 and should be completed within the year.
As the project is performed by SapuraAcergy which is a 50:50 joint-venture between SapuraCrest and Acergy, the earnings will be recognised as a JV contribution. Based on a 7.5% net margin assumption, the contract could reap JV earnings of RM18 million. This is the company’s second win of the year. Its first win was in India for the transport and installation of platform jackets in the Mumbai High North Field project.
Things have been pretty quiet on SapuraCrest’s end after winning the RM3 billion umbrella contract from Petronas. However, we take the recent contract win as a sign that the company is still committed to expanding its international contributions. The government’s recent tax incentive move could potentially result in more demand for the company’s self-erecting tender-assist rigs, given tender rig charter rates do not fluctuate as much as jack-up rigs, thus providing a cheaper alternative for marginal oilfield development. The stronger contract pipeline expected in 2011 for the sector will also be very positive for the company given its solid track record
Risks include: (i) rising costs of materials, labour and assets; (ii) potential margin squeeze for the installation of pipeline and facilities (IPF) division due to price competition for new contracts; and (iii) continued losses on the marine division.
No change to forecasts at this juncture. We look forward to the company’s 3QFY11 results in December to reassess our earnings assumptions.
We reiterate our outperform call on the stock with an unchanged fair value of RM3.34 based on a first-month FY12 target PER of 18 times. — RHB Research, Dec 1
This article appeared in The Edge Financial Daily, December 2, 2010.
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