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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 30 Oct 2020, 10:22 AM

 

Sapura Energy - Second Win For The Year

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Sapura Energy (SapE) announced the second batch of job wins in FY21 consisting of two for the engineering and construction (E&C) segment in Mexico and Brazil and one drilling contract in Ivory Coast with a combined value of c.RM840m. With these contracts, the Group’s existing orderbook remains at ~RM14bn. While undoubtedly positive on the Group earnings visibility for the next few years, we are wary over the project’s profit margin given the current operating environment that limits oil majors’ capital spending budgets. SapE’s earnings may not see material boosts from these wins. We maintain our earnings estimates, having already factored in these contracts into our annual orderbook replenishment. SapE will announce its 2QFY21 financial results in the coming weeks, with expectation that the bottom line will remain in the red, weighed by movement restrictions and lower crude oil prices. Our Neutral rating with TP of RM0.09 is maintained.

  • The contracts, second win for the financial year, comprises of three new jobs. Two are in relation to its E&C segment across two countries (Mexico and Brazil) and one drilling contract in Ivory Coast. Total value is estimated to be around RM840m with a contract lifespan up to April 2022. Project details are in Table 1.
  • Earnings forecast unchanged. With these job wins, SapE has secured a total of RM1.6bn worth of contracts this financial year, maintaining its existing orderbook at around RM14bn. Despite the encouraging orderbook, we are wary over these projects’ contribution to the bottom line given the possibly low profit margins given the current operating climate. Should oil prices sustain at current low levels for a longer period, SapE’s prospects may remain uncertain as activity levels stay low amid volatile profit margins, depending on work progress. The new operating environment in light of the Covid-19 pandemic which requires stricter operating procedure may also pressure job progress.

Source: PublicInvest Research - 18 Sept 2020

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