SAPURA Energy Bhd’s prospects are deemed to have weakened further with the termination of its contract to transport and install monopole substructures for the Yunlin offshore windfarm turbines operated by Yunneng Wind Power Co Ltd in Taiwan.
Against such backdrop, AmResearch has reiterated its “sell” rating on the global integrated oil & gas (O&G) outfit with an unchanged fair value of 3 sen/share pegged to a 50% discount to its FY2022F net tangible asset (NTA) of 7 sen (the valuation incorporates a neutral environmental, social and governance [ESG] rating of three stars).
For the record, work progress on the project has only reached 36.9% to-date. The termination stems from a breakdown of negotiations after Yunneng attempted to enforce contractual claims against Sapura despite changes in conditions.
Sapura had made loss provisions of RM1 bil in 2Q FY1/2022 and additional impairments of RM212 mil in 3Q FY1/2022 for the Yunlin project together with other projects impacted by the COVID-19 movement restrictions.
The Yunlin contract was awarded on March 15, 2019 and subsequently announced by Sapura on June 26 that year together with multiple other engineering, procurement, installation and drilling jobs which reached a total value of RM1 bil.
It was scheduled for completion over 16 months by September 2020. However, this was delayed due to technical difficulties from inaccurate subsea soil data provided by the client Yunneng as asserted by Sapura.
Hence, the job execution was hampered, work safety compromised and costs rose substantially above expectations.
Even though job prospects are improving across the globe on a higher crude oil price environment, AmResearch observed that the pandemic’s adverse impact on Sapura’s earnings delivery appears to be substantively worse than other service providers such as Dialog Group Bhd and Yinson Holdings Bhd which are operating in different value chains of the sector.
“In the absence of substantive 3Q FY1/2022 new contract wins, the group’s remaining order book further slid by 32% quarter-on-quarter (qoq) to RM7.6 bil,” projected analyst Alex Goh in a company update.
“This translates to an uncomfortably low 1.5 times FY1/2022F revenue given the group’s current liquidity crisis in which suppliers are wary of extending further credit with Sapura’s trade payables rising by 24% to RM3.3 bil from 4Q FY1/2021.”
Furthermore, AmResearch reckoned that the group may not have the financial capacity to undertake new jobs against the backdrop of its bid submissions decreasing by 37% qoq to RM22 bil as the management focuses on key geographical areas and market segments.
“While the group has drawn up a restructuring task force to explore asset divestments to improve liquidity, this may imply further impairments to RM8.9 bil fixed assets as well as RM5 bil goodwill on past acquisitions over the coming quarters,” observed the research house.
“The stock currently trades at a justified discount of 30% to FY1/2022F net tangible assets given the prospects of further losses. Any equity-raising exercise would be highly dilutive to existing shareholders at the current battered share price.”
At 10.10am, Sapura was down 0.5 sen or 9.09% to 5 sen with 4.99 million shares traded, thus valuing the company at RM799 mil. – Feb 7, 2022
