Investment Highlights

• We maintain our SELL call on Sapura Energy (Sapura) with an unchanged fair value of RM0.05/share, pegged to 0.2x to the group’s FY22F NTA as the group could still experience potential losses in the upcoming quarters amid revenue deferrals and possible rights issue.

• In its second announcement of fresh contracts for this year, Sapura’s subsidiaries and joint ventures have secured engineering and construction jobs worth RM840mil as follows:
   
  • Engineering, procurement, construction and installation (EPCI) services for the Amoca platform, pipeline and subsea cable interconnecting the Amoca to Mizton platforms and floating production storage and offloading vessel by Eni Mexico S. de R. L. de C.V. This is for the Amoca project at Offshore Block Area 1 in Mexico. The works are expected to be completed by 4QFY22.
     
  • Sapura Esmeralda, the flexible pipe laying vessel owned by Seabras Sapura Participações S.A., a joint venture company between Sapura and Seadrill, has secured a 12-month extension of its charter after the expiry of its existing contract in April 2021 by Petrobras in Brazil. The contract scope of work comprises the provision of services and charter for installation and recovery of flexible pipes.
     
  • Sapura’s tender assisted drilling rig, Sapura Berani, has secured a charter for 3 wells plus 1 well extension option over a firm period of 9 months commencing 1QFY22 at offshore Ivory Coast by Foxtrot International LDC.
     
• While positive on these awards during an intensely challenging down cycle in the sector, these new contracts are unlikely to prevent further declines in the group’s current order book of RM14bil (2.9x FY21F revenues) given the quarterly depletion of RM1.4bil. We estimate that the order book could drop by 4% in the coming 2QFY21 results, which will be released later today.

• The group had earlier indicated substantive provisions as less likely under the improved oil price environment compared to mid-March this year, notwithstanding the pending audit of its E&P segment by its JV partner, OMV. However, we do not preclude the possibility of an equityraising exercise pursuant to management’s plan to refinance its RM10bil debt with 14 banks by the end of the year and secure additional working capital of RM1.5bil for its ongoing and prospective projects.

• Given the prospects of further losses in the coming quarters, the stock currently trades at a low 0.2x PBV.

Source: AmInvest Research - 18 Sept 2020