Investment Highlights

• We maintain our SELL call on Sapura Energy (Sapura) with unchanged forecasts and 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 sluggish project rollouts.
• Sapura has secured 3 contracts worth RM611mil from:
  • Total E&P Golfe Limited – to provide engineering, procurement, supply, construction, installation and precommissioning services for two 16” pipelines between DP4 & DP3 and DP3 & DP2 platforms in Al-Khalij Field, Block 6, 110km offshore Qatar.
  • The field is located in water depths of 59 metres, east of the mainland coast and 40km northeast of Halul Island. The works are expected to be completed by 2QFY22.
  • Carigali-PTTEPI Operating Company Sdn Bhd – to provide engineering, procurement, construction, transportation, marine spread chartering, installation, offshore hook up and commissioning of host tie-in and brownfield modification work at Jengka-A and Andalas-B wellhead platforms as well as MUDA central processing platforms.
  • These are for phase 4 development of the additional Andalas pipeline project in the Malaysia-Thailand Joint Development Area. The works are expected to be completed by 3Q FY2022.
  • Total Exploration and Production Congo – to charter Sapura’s tender assisted drilling rig Sapura Berani for 3 wells located offshore Congo commencing in 4QFY2021 over 3 months and an option of one well extension.
• Including these contracts, Sapura has secured contracts worth RM2.2bil YTD vs. the group’s 1HFY21 revenue recognition of RM2.6bil. Hence, given Sapura’s quarterly depletion rate of RM1.2bil–RM1.3bil, we do not expect these new contracts to reverse Sapura’s declining outstanding order book trajectory which led to a 5% QoQ contraction to RM13.3bil in 2QFY21.
• Although the group is bidding for RM29.4bil of new jobs with additional prospective projects of RM63bil, clients could defer the awards until next year amid the uncertain oil price outlook.
• Meanwhile, the group’s huge debt of RM10bil still needs to be refinanced with 14 banks by next month, 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 any potential cost provisions and asset impairments by 4QFY21 given that Petronas has registered a 1HFY20 loss of RM18bil, together with other oil majors. Hence, the stock currently trades at a low 0.2x PBV.

Source: AmInvest Research - 17 Nov 2020