Oil and gas services provider Sapura Energy (SAPE) has secured contracts worth RM760m, including a sizable drilling contract. Macquarie Equities Research (MQ Research) released a report last week (8 Jan) with an Outperform recommendation, and raised their FY20 and FY21 earnings per share (EPS) by 4% and 1% respectively, lifting their target price to RM0.56.
Conclusion
- SAPE announced RM760m contract wins, including a sizable drilling contract.
Impact
- The Angola drilling contract win is notable for the length of the contract, two years, vs SAPE’s previous contract wins which have only lasted several quarters. MQ Research expects the rates will be substantially higher vs ASEAN, potentially the highest rates in the fleet. Nonetheless MQ Research expects utilisation to remain soft in FY20 on flat tender rig activity outlook from Petronas.
Earnings and Target Price Revision
- MQ Research upgrades FY20/21 earnings per share (EPS) by 3.9%/1.4% on higher drilling earnings.
Price Catalyst
- 12-month price target: RM0.56 based on a Sum of Parts methodology.
- Catalyst: Completion of cash call, exploration & production (E&P) stake sale and new contract wins.
Action and Recommendation
- MQ Research sees short term pressure on the share price from the post-rights overhang. However, long term fundamentals continue to improve. Maintain Outperform with marginally higher target price of RM0.560.
Source: Macquarie Research - 14 Jan 2019
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