Highlights

Sapura Energy- Replenishing Orderbook

Date: 04/06/2020

Source  :  PUBLIC BANK
Stock  :  SAPNRG       Price Target  :  0.06      |      Price Call  :  SELL
        Last Price  :  0.12      |      Upside/Downside  :  -0.06 (50.00%)
 


Sapura Energy (SapE) announced that it has been awarded multiple Engineering and Construction (E&C) contracts in four different countries – Malaysia, Thailand, Brunei and Singapore with a combined value of c.RM766m. While these contract wins are undoubtedly positive to the Group as it ensures visibility to the Group’s topline for the next few years, contribution to earnings are unconvincing given the thin profit margin at the early stage of commencement, coupled with the current operating climate that could delay the implementation. Should oil prices sustain at current low level for a longer period, there are risks of deferment and revision for the contract terms and value. Having said that, we estimate the Group’s existing orderbook surged to RM14.3bn after imputing this replenishment. We make no adjustment to our earnings estimates, having already accounted for it in our yearly replenishment assumption. Our Underperform call is maintain with an unchanged TP of RM0.06.

  • The contracts. The Group announced the first batch of job wins in FY21, comprising of five new contracts in relation to its E&C segment across four countries (Malaysia, Thailand, Brunei and Singapore). Total value is estimated to be around RM766m with a contract lifespan of around 8 – 29 months with the earliest to complete by 4QFY21 and latest by 3QFY23. Project details are in Table 2.
  • Replenishing its orderbook, but... With this job wins, we estimate the Group’s existing orderbook surged to RM14.3bn. Despite the orderbook which undoubtedly will ensures visibility to the Group’s topline numbers for the next few years, contribution to earnings are unconvincing given the thin profit margin at the early stage of commencement, coupled with the current operating climate that could delays the implementation. We see headwinds if oil prices sustain at current low level as the risk of project deferment is high. Recall, the Group deferred its FY21 orderbook burn rate of around RM600m – RM800m to FY22 during its 4QFY20 results at end of April, resulting FY21 topline to contract around 15%. More and more deferments are likely, given the current operating climate. The Group is expected to report a loss of RM612.4m in FY21 and will remain in loss for FY22/23 of RM408m and RM194.3m respectively as profit margins for E&C and drilling will get hit due to lower utilization.

Source: PublicInvest Research - 4 Jun 2020

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