Where is the bottom for Sapura Energy’s shares despite rising oil prices?

The company is still trying to find its lower as its shares continue to be under selling pressure


Oil prices may have returned to reasonable levels since the 2014 drubbing, but oil and gas (O&G) giant Sapura Energy Bhd has not been able to buckle the downward trend.

The company which was among the favourite O&G service providers is still trying to find its lower as its shares continue to be under selling pressure, slumping to a new record low of 47 sen.

In the last 52 weeks the share price, shares of the integrated O&G services company, has lost 75.4% of its value, erasing billions from the market capitalisation.

The company which was previously known as SapuraKencana Petroleum Bhd is now valued at RM2.87 billion.

Seen as another casualty of the oil rout of 2014, Sapura Energy reached a peak of RM4.98 at the end of 2013. But since the global industry tumbled, Sapura Energy’s share price has been heading south.

Analysts said further impairments, institutional investors reducing their exposures and the sector’s negative sentiment continued to drive Sapura Energy’s share price.

This trend is expected to continue in the near-term as investors would benchmark any decision to the company’s financial results.

A research analyst said Sapura Energy has been depreciating due to the expectation that it would turn in a poor quarterly showing.

“UMW Oil and Gas Corp Bhd, one of the big players in the market, widened its net loss position for the fourth quarter (4Q). Investors are anticipating Sapura Energy’s results to be in line with this,” the analyst told The Malaysian Reserve (TMR) under the condition of anonymity.

The analyst said any recovery in the company’s share price would be primarily driven by its financials.

“If the company manages to register no or reduced impairments for the quarter, then investors’ confidence in the stock could return. But this is unlikely as about a half of its drilling rigs are presently unutilised,” said the analyst.

For its 3Q ended Oct 31 last year (3Q18), the O&G service provider — which derives the majority of its revenue from the engineering and construction and drilling businesses — fell to a net loss of RM274.41 million against a net profit of RM158.06 million in 3Q17.

This was mainly attributable to the low levels of capital spending in the industry and lower utilisation of assets.

“For the biggest service provider to be performing as a penny-stock indicates that the counter could be in an ‘Oversold’ position,” the research analyst said.

Affin Hwang Capital Research has lowered the target price for Sapura Energy to 40 sen from 73 sen.

The research house cite a few challenges — including impairments, negative earnings and weak cashflows.

Another source within the O&G industry said there has been a lot of short-selling in the market as investors reacted to developments in the US, and O&G counters had been at the beating end.

“Large-cap companies like Heng-yuan Refining Co Bhd have been on a declining trend of late. This has further dampened sentiment across O&G stocks,” the source told TMR.

The industry insider said the Employees Provident Fund (EPF) has been gradually reducing its exposure to the company, including disposing of 3.1 million shares between March 1 and 2 this year though the country’s largest pension fun retained a 6.67% stake in the company.

“A key investor like the EPF selling at a time when oil prices are averaging higher is creating an overhang effect whereby investors are growing wary of the stock and subsequently selling off.”

Sapura Energy — who is also engaged as an exploration and production (E&P) player — currently holds a sizeable orderbook of approximately RM15 billion which should provide the company earnings visibility in the next few years.

The company has also allocated a record tenderbook of US$9.5 billion (RM38 billion) and is looking at additional markets in the Middle East and Africa to replenish its orderbook.

While national energy company Petroliam Nasional Bhd (Petronas) and other oil majors in the market have turned in strong financial showings in 2017, the results of O&G service providers are not expected to pick up in the next 12 months.

“There is usually a lag period of between six months and a year before service operators catch up to oil majors in terms of results, as capital spending from the latter will take a while to trickle down,” the industry source said.

“We are also seeing utilisation of assets in the market improving, with drilling rates picking up alongside slight improvements in charter rates — so there is some light at the end of the tunnel.”

According to BMI Research’s report last week, Petronas will continue to practise a prudent and conservative approach to capital spending, budgeting for an oil price of US$50 per barrel this year.

The research said the majority of the state-owned O&G group’s capital expenditure — allocated at some RM55 billion this year — will be used for advancing its US$27 billion Pengerang Integrated Petroleum Complex which is slated for start-up early next year.

Within this period of prolonged low levels of capital spending, Sapura Energy’s share price is expected to continue to face downward pressures.