Analysts optimistic on Sapura’s outlook

By SULHI KHALID / Pic By www.sapuraenergy.com

SAPURA Energy Bhd is expected to break even financially in the second quarter of 2020 (2Q20), according to Kenanga Research.

The research house believes the outlook is underpinned by the improved drilling utilisation, engineering and construction (E&C) jobs load-out, and interest and depreciation savings from its recapitalisation and impairments done last year.

Last week, the integrated oil and gas (O&G) services company reported its 1Q20 result and has managed to narrow its net losses to RM109 million from RM135 million recorded in the previous corresponding quarter.

Meanwhile, the group’s revenue for the period rose 93% year-on-year (YoY) to RM1.63 billion supported by higher revenue reported from its E&C and drilling business segments.

In an exchange filing to Bursa Malaysia, the group declared the RM1 billion contract expanded across several countries including Thailand, Taiwan and Australia.

“The company also announced 10 new contracts awards (seven E&C, three drilling) valued at RM1 billion in total. We are undoubtedly positive on the contracts win, highlighting the company’s global competitiveness and contract winning capabilities,” said an analyst in Kenanga Research.

Sapura Energy has also entered into a long-term frame agreement with Petrolium National Bhd for six years to provide provision for engineering, procurement and construction (EPC) of fixed offshore structure works.

These new contract awards have increased the group’s orderbook to RM17.3 billion to date and is expected to provide visibility on the group’s earnings for the next three to four years.

“We have an unchanged target price of RM0.43. Sapura Energy remains our selected tactical play with limited downside, capitalising on its turnaround story in the second half (2H),” the research house said.

In late January this year, the group completed its RM4 billion rights issue — resulting in gaining RM4.06 billion in cash proceeds from OMV Aktiengesellschaft (OMV AG) and, along with the proceeds from the rights issue, which were predominantly used to repay its outstanding RM17.21 billion debt.

Following the rights issue exercise, Permodalan Nasional Berhad (PNB) has emerged as the single largest shareholder with a combined 40% shareholding in Sapura Energy. Sapura Technology Sdn Bhd, controlled by its CEO Tan Sri Shahril Shamsuddin, remained the second- largest shareholder after PNB, with a shareholding of 14.3%.

Commenting on the group’s initiative, Kenanga highlighted the rights issue exercise has successfully proven to reduce the group’s borrowing.

“Yes, it (rights issue) should substantially reduce its finance costs from the lowered borrowings,” it said.

Echoing similar view is Affin Hwang analyst, Tan Jianyuan, who said the group is expected to see a stronger quarter driven by an improvement in the drilling segment on the back of higher operating rig count.

“2H20 is expected to see a stronger quarter driven by improvement in the drilling segment on the back of higher operating rig count with T-9, T-10 and Jaya commencing their contracts (rigs in operation will increase from the current five units to eight rigs from 3Q20 onwards,”he said.

According to Tan, the E&C segment is expected to perform better as projects progressively see a ramp-up in terms of execution, in addition to the interest cost-savings. Affin Hwang has maintained a ‘Hold’ rating with a target price of RM0.35.

“With the macro environment already so uncertain, we prefer to see more meaningful and clearer signs of an earnings recovery for Sapura Energy,” he said in a research report. Sapura Energy’s shares hit 52-week high at RM0.66 and 52-week low at RM0.26. Currently, the shares are trading at RM0.30 with a market capitalisation of RM4.87 billion.

The group has a global presence in over 20 countries including China, Australia, the US and Middle East, employing approximately 13,000 people.