Analysts Positive On Sapura’s Outlook

SAPURA Energy Berhad is predicted to break even financially in the second quarter of 2020, according to Kenanga Research.

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

Last week, the integrated oil and gas services company reported its 1Q20 result and had 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 the higher income reported from its E&C and drilling business segments.

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

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

These new contract awards have increased the group’s order book to RM17.three billion so far and is expected to provide visibility on the group’s earnings for the next three to four years.

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 challenge of the right, which were predominantly used to repay its outstanding RM17.21 billion debts.

Following the rights difficulty train, Permodalan Nasional Berhad (PNB) has emerged as the single largest shareholder with a mixed 40% shareholding in Sapura Vitality. 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 concern exercise has successfully proven to reduce the group’s borrowing.

Echoing detailed view is Affin Hwang analyst, Tan Jianyuan, who stated 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.

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 worth of RM0.35.

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