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 and asset impairments in the upcoming quarters amid revenue deferrals.

• Sapura’s founder and current president/CEO Tan Sri Shahril Shamsuddin will be retiring on 22 March 2021 upon reaching 60 years old. During a 6-month interim period beginning from 1 October 2020, Datuk Mohd Anuar Taib, who is Sapura’s current independent and non-executive director for only 3 weeks, will be designated as chief operating officer and CEO-designate.

• Anuar has extensive experience in the oil & gas sector, helming Petronas Carigali as its CEO before heading Petronas’ upstream division as executive vice president. In 1990, he began his career at Sarawak Shell Bhd and progressed to the position of chairman of Shell Companies in Malaysia in 2010.

• We are surprised by this new development, as Sapura, which started as a diving contractor, has been a part of the group of companies started by Shahril’s family. Also, he did not provide any indication of his retirement during an analyst briefing last Friday.

• Nevertheless, we are positive on his designated successor, Anuar who comes with a commendable track record of senior working experience and a well-established network with Petronas and Shell.

• However, the group’s huge debt of RM10bil still needs to be refinanced with 14 banks by December 2020, which could mean additional equity-raising exercise in the pipeline that will translate to massive dilution given the current low share price.

• Even though Sapura registered an improvement in 1HFY21 results, we remain cautious of potential cost provisions and asset impairments by 4QFY21 given that Petronas has posted a 1HFY20 loss of RM18bil, together with other oil majors.

• Additionally, Sapura's 2QFY21 outstanding order book decreased 5% QoQ to RM13.3bil (2.8x FY21F revenues), as the recent new wins of RM840mil were insufficient to offset the 2QFY21 depletion of RM1.2bil. Even though the group is bidding for RM29.4bil of new jobs with an additional prospective projects worth RM63bil, the order book could still decline over the next 2 quarterly as clients are likely to postpone the awards until next year if the current gloomy offshore outlook persists.

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

Source: AmInvest Research - 22 Sept 2020