ONCE a staunch supporter of Sapura Energy Bhd, AmResearch has further downgraded the international integrated oil & gas (O&G) outfit to “sell” (from “hold” previously) with a lower fair value of 3 sen (from 11 sen previously) following yet another set of dismal financial performance.
Sapura Energy’s FY1/2022F net tangible asset (NTA) discount reflects the research house’s sharply deteriorated loss forecasts, up by 79% to RM3.1bil for FY1/2022F and 22 times to RM1.6 bil for FY1/2023F due to lower engineering & construction (E&C) progress and cost provisions for E&C and drilling divisions.
“These lower revenue and margin assumptions also reversed the company’s FY1/2024F earnings of RM71 mil to a loss of RM621 mil,” projected analyst Alex Goh in a results review.
According to AmResarch, Sapura’s 9M FY1/2022 loss of RM2.28 bil was significantly below expectations versus its earlier FYFY1/2022F loss of RM1.7 bil and street’s RM1.4 bil.
This largely stemmed from slower E&C construction progress, RM212 mil asset impairments and RM242 mil provisions for foreseeable losses from COVID-19 delays and site variations.
“While the management is attempting to claim the additional costs of RM300 mil arising from COVID-19 delays for the Yunlin offshore wind farm and ONGC’s (Oil and Natural Gas Corp) KG-DWN 98/2 projects, there is no certainty in recovery as we understand that Sapura’s clients are also struggling under unprecedented scenarios amid ongoing movement restrictions and volatile commodity prices,” justified AmResearch.
Elsewhere, UOB Kay Hian Research also retained its “sell” rating on Sapura Energy with a diluted target price of 3 sen.
“We continue to peg it to 0.1 times P/B (price-to-book ratio) which assumes high default risk based on our assessment of its ability to renegotiate covenants, likelihood of generating sufficient cash flow and ability to sell assets at a decent price,” justified analyst Kong Ho Meng.
Interestingly, MIDF Research retained its “buy” call on Sapura Energy on the basis that the gradual re-opening of international borders as the pandemic recovery progressed with the vaccination and booster shot drives in the region presented the company with an opportunity to obtain more contracts in its E&C and E&P (exploration and production) divisions.
However, the research house revised Sapura Energy’s target price downward to 9 sen (from 14 sen previously).
“We opine that despite the lower earnings, the group’s strong order book showcased the resiliency and trustworthiness in its services, equipment and operations on a global scale,” noted the research house. “We believe its contract wins and future prospects will continue to sustain its bearing in the sector.”
However, risk factors remain to be (i) the imbalance of oil price market and the demand for oil and gas services and equipment; (ii) the continual of supply chain disruption; and (iii) slow recovery and/or resurgence of another wave of COVID-19 pandemic infection.
At 3.30pm, Sapura Energy was unchanged at 5 sen with 36.45 million shares traded, thus valuing the company at RM799 mil. – Dec 14, 2021
Photo credit: NST
