AGAINST the backdrop of its impressive multi-million ringgit (sometimes even quoted in US dollars) job attainment on many occasions, it will be difficult to decipher how Sapura Energy Bhd can be incurring one net loss after another.
For example, its massive 1H FY1/2022 core net loss of RM1.7 bil compared unfavourably against CGS-CIMB Research’s RM139 mil full-year loss forecast and consensus’s RM175 mil loss.
This was the result of:
- A RM1 bil provision for foreseeable losses on two projects, notably the Yunlin offshore wind farm installation in Taiwan and central processing platform (CPP) fabrication job for ONGC in India;
- Revenue reversal of circa RM700 mil related to those projects;
- COVID-19-related compliance costs of RM69 mil;
- RM47 mil share of the write-off of dry well drilling costs at SapuraOMV; and
- Another RM47 mil share of the reversal of revenues at SapuraOMV’s Peninsular Malaysia oil blocks relating to revenues earlier recognised between Feb 1 (when the sale to Jadestone became effective) and July 31 2021 (when the sale was ultimately completed).
“Sapura has mis-estimated the seabed conditions offshore Taiwan and piling work for the offshore wind turbines is taking longer than expected,” revealed analyst Raymond Yap in Sapura’s results review.
“The CPP job for ONGC (in India) had been delayed multiple times by COVID-19 infection at Sapura’s Lumut yard, resulting in the narrowing of the window for work in India due to the monsoon.”
These delays, according to CGS-CIMB Research, have resulted in the widening of the cost estimates for the completion of those jobs. As total expected costs now exceed the contractual values, provisions for foreseeable losses were accrued.
“As E&C revenues are recognised using the percentage of completion method, upward revisions in the expected total project costs naturally reduce the estimated completion rate, resulting in a downward revision in cumulative revenues which then require cumulative revenues recognised to-date to be partially reversed in 2Q FY1/2022,” explained the research house.
“On top of this, Sapura has incurred RM400 mil in COVID-19-related costs since the pandemic started but has not yet been able to recoup them from its clients.”
CGS-CIMB Research further noted that the two troubled projects were secured during the tenure of then-president and founder Tan Sri Shahril Shamsuddin who has since handed over the reins to Datuk Mohd Anuar Taib on March 23.
“The new president is now exercising greater circumspection when bidding for new projects,” observed the research house.
“However, Sapura acknowledged that its cash position was tight and some suppliers are refusing to do further work until they are paid for sums overdue. Sapura is negotiating with its banks for further liquidity on which its ability to survive depends.
“Sapura’s net gearing has reached 3.9 times, assuming goodwill of RM5.1 bil is fully written off.”
All-in-all, CGS-CIMB Research downgraded Sapura to “reduce” (from “hold previously) with a lower sums-of-part (SOP)-based target price of of 4.5 sen (from 11.5 sen previously) as the research house widens its loss forecasts on Sapura’s project miscalculations.
At 10.23am, Sapura was down 0.5 sen or 4.35% to 11 sen with 100.58 million shares traded, thus valuing the company at RM1.76 bil. – Oct 1, 2021
