No instant “like” for Sapura even after bagging RM1.2 bil of new contracts

SAPURA Energy Bhd’s future continues to fascinate the analyst fraternity with its recent bagging of a second batch of contract wins valued at circa RM1.2 bil generating a mixed rating of “buy”, “neutral” and “sell”.

Hong Leong Investment Bank (HLIB) Research which retained its “buy” rating on the integrated oil & gas (O&G) service provider (with an unchanged target price of 15 sen) viewed the recent flurry of drilling contract wins as a very positive leading indicator towards the recovery of Sapura’s exploration segment.

“Sapura currently has seven active tender drilling rigs and we expect strong performance from its drilling segment to continue,” opined analyst Low Jin Wu in a company update.

“We believe that Sapura would be able to capitalise on its contract wins with its improved operational efficiencies over the last few quarters as its FY1/2021 operational expenses has decreased by 32% year-on-year (yoy).”

HLIB Research further expects Sapura to be in the black from FY1/2022 onwards after being in the red for four consecutive years (from FY1/2018-FY1/2022).”

Yesterday (July 21), Sapura announced seven contract wins comprising the following:

  • Provision of transportation and installation of Pemanis Wellhead Platform Topside from PTTEP Sarawak Oil Ltd (eight months);
  • Replacement of subsea pipeline and risers including transportation and installation services from Enquest Petroleum (five months);
  • Provision of maintenance, construction and modification (MCM)works for PM8 extension PST from Enquest Petroleum (one year);
  • Topside major maintenance (TMM) services for Sarawak Shell and Sabah Shell (three years and four months);
  • Provision of tender drilling rig for drilling activities in offshore Malaysia by Petronas Carigali (2 years + 2 years optional extension);
  • Integrated rig, drilling and completion services contract by Petronas Carigali for six wells in offshore Malaysia (three to four months); and
  • Provision of offshore drilling rig (T-17) in gulf of Thailand by PTTEP Group (three years + one year optional extension).

To re-cap, Sapura found itself remaining in the red for its 1Q FY1/2022 with a net loss of RM102.2 mil on the back of a revenue of RM1.47 bil. It incurred a net loss of RM160.25 mil during its FY1/2021 although this was an improvement from a net loss of RM4.56 bil in the previous financial year.

PublicInvest Research which has a “neutral” stance on Sapura (with an unchanged target price of 14 sen) expects more jobs to be secured by the group on the back of oil price stability above US$60/barrel from its circa RM37 bil submitted bids as compared to wins of only RM2.2 bil (as per the research house’s records) in FY1/2021.

“Thus far, it has replenished a total of RM3.05 bil worth of contracts in FY1/2022,” rationalised analyst Nurzulaikha Azali.

“No change in our forecast, having assumed this in our order book replenishment assumption. Outstanding order book remains healthy at circa RM13 bil though efficiency on project execution and profit margins remain a question.”

Maybank IB Research which is pessimistic of Sapura’s outlook noted that while the RM1.2 bil new job wins have lifted the group’s new orders to-date to RM3 bil, it still falls short of its RM12 bil job wins in FY1/2021.

“Sustaining replenishment is crucial alongside continuous cost management,” justified the research house.

“Its high debt (RM10 bil)/net gearing (one time) levels remain a concern which will delay its energy transition plan that is only likely to take place in two to three years. It needs to hit RM1.5 bil EBITDA (earnings before interest, taxes, depreciation, and amortisation) to match its seven-year repayment period which is untenable by our estimate by FY1/2024.”

Maybank IB Research accorded Sapura a “sell” rating with an unchanged sums-of-part (SOP) target price of 10 sen.

At 9.53am, Sapura was unchanged at 12.5 sen with 9.56 million shares traded, thus valuing the company at RM2 bil. – July 22, 2021

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