TA Securities: Challenges remain for Sapura Energy

However, it says the O&G service provider will find some relief from the recovery in oil prices


Sapura Energy Bhd, which slipped to wider losses of RM209.7 million, will continue to be pressured with a margin squeeze for the engineering and construction and drilling divisions, according to a research house.

TA Securities Holdings Bhd in a research report said Sapura Energy’s drilling, as well as engineering and construction businesses, will continue to be weak due to the margin squeeze and the lack of orderbook replenishment.

However, the oil and gas (O&G) service provider will find some relief from the recovery in oil prices, and significant exploration and production (E&P) assets.

“Its treasure trove of E&P net reserves and resources of 243 million barrels of oil equivalent translate to immense monetisation potential and earnings visibility over the longer term,” said TA Securities.

“We believe that the emphasis should be placed on the E&P segment, which is directly correlated to oil price.

“Given that oil prices have bottom out, this would enhance cash generation from the E&P division, underpinned by first gas at B15 on Oct 17 and the increased net production from PM323 after the in-fill drilling programme (+7,700 barrels per day),” the research firm said.

According to the analyst report, the offshore service provider’s robust operation cashflow of RM640 million year-to-date has enabled it to internally fund development capital expenditure for its E&P assets.

Sapura Energy, said TA Securities, has “no bullet repayment” due in the 2018 financial year (FY18) for its short-term debts of RM1.8 billion.

“This provides respite for the group to weather the industry downturn until the oil price recovers further,” said the research house.

Sapura Energy recorded a net loss of RM274.4 million in the third quarter ended Oct 31, 2017, against a net profit of RM158.06 a year ago.

In the meantime, revenue for the quarter plummeted 42.4% to RM1.28 billion from RM2.22 billion recorded a year ago.

The wider than expected losses had investors dumping the shares of the O&G company, pushing the shares to a 52-week low of 79 sen last Friday from the opening price of 97 sen.

The counter ended last Friday’s trading day at 83 sen. It was trading around RM1.25 early last week.

Renewed optimism on the rising oil prices also helped Sapura Energy’s shares to rise to a 52-week high of RM2.10.