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Tuesday, December 29, 2009

Umbrella contract win-Sapura Crest

· Umbrella contract win RM1.5bn for 2010 SapuraCrest last Thursday finally announced the receipt of the joint contract by 11 of Petronas’ Production Sharing Contractors (PSCs) for the provision of works and services for the transportation and installation of offshore oil and gas facilities and structures for the PSCs for the years 2010 to 2012. The job will be performed for the PSCs for a duration of 3 years, from 2010 to 2012 with options for 2 further extensions of 1 year each. The scope of works and the project schedule relating to the same shall be specified and determined on a yearly basis. The price for the confirmed scope of works for year 2010 is approximately RM1.5bn.

· A boost of confidence for FY11 numbers
We have been very conservative with our forward estimates on SapuraCrest for FY11 onwards, projecting previously a decline in EPS of 8.6% from FY10. In large part, it was due to the uncertainty of the timing of this job. However, with this long awaited job now coming into fruition, we are raising our estimates accordingly. Judging from previous transport and installation jobs, we view it possible for the Group to achieve up to 10% margin at EBIT level. However, should the job require 3rd party charter of vessels to complete jobs, we believe then that margins would be closer to the 5% range. Hence, we are imputing the latter margin in our
revised estimates for now.

· Upgrading TP to RM2.16, maintain HOLD
We are raising our FY11 and FY12 estimates by 34% and 34.1% respectively (FY10 left unchanged). We also raise our target price to RM2.16 from RM1.55 before. RM2.16 is based on FY11 EPS pegging SapuraCrest average PE of 16x seen over 2007 into 2009. We continue to have a HOLD call on the group and view this news already factored into the stock. A meeting with management is nonetheless due in order to get more details on the job as well as confirm on the margin estimates.

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