Investment Highlights

• We maintain our BUY recommendation on Sapura Energy (Sapura) with an unchanged fair value of RM0.29/share, pegged to a 50% discount to the group’s FY21F book value.

• Our forecasts are also unchanged as we expect the group’s 50%-owned joint venture involving 6 flexible pipelay support vessels (FPSV) are expected to maintain operations although its JV partner Seadrill has filed for voluntary Chapter 11 bankruptcy protection in the US for its Asian-based subsidiaries.

• Rig operator Seadrill said that the action was “a protective measure to support Seadrill’s broader comprehensive financial restructuring” and would “in no way affect the safe and efficient operation of the Asia Offshore Drilling offshore drilling units”.

• Sapura has also affirmed that the Chapter 11 filing of Seadrill’s Asian operations does not involve Sapura-Seadrill’s FPSV operations which are mainly undertaken in Brazil, nor does this development trigger any cross-default for the JV financing structure.

• Currently, 5 of the FPSVs are operating in Brazil for Petrobras. However, management is hoping to secure an extension for Sapura Topazio at the Marlim field in the Campos Basin while Sapura Diamante, which has been out of firm contract since last year, currently works on a short-term charter at Dos Borcos Port field in the Gulf of Mexico for Hokchi Energy.

• Meanwhile, the financial close for the restructuring deal for Sapura’s RM10bil syndicated debt has been delayed yet again from January towards the end of this month due to the participating banks’ approval process. However, our channel checks affirm that the principals have agreed to the terms of the deal.

• Recall that the deal would extend the loan for another 7 years without any substantive interest cost increases, which we believe was assisted by Sapura’s largest GLC-backed shareholder. Also, Sapura has secured additional working capital of RM1.2bil for its ongoing and prospective projects.

• As highlighted in our Sector Update on 4 January 2021, Petronas’ Activity Outlook for 2021–2023 expects 8 greenfield and 30 brownfield field development projects to be sanctioned over the next 36 months.

• For this year alone, domestic bids could be opened for another CPP in excess of 7,500 tonnes, 5 wellhead platforms weighing between 1,000 and 7,500 tonnes and one ‘light’ wellhead platform below 1,000 tonnes.

• This underpins our view that Sapura’s order book momentum is set for a transformative turnaround with the group bidding for a massive RM38.8bil (+32% QoQ) of new jobs besides even larger prospective projects worth RM68bil amid the brightening outlook in upstream capex upcycle.

• Against the backdrop of improving prospects of new jobs across the globe and underpinned by a soon-to-be revitalised RM10bil debt structure by the end of this month and more optimistic crude oil prices, the stock currently trades at an undeserved fire-sale 0.2x PBV.

Source: AmInvest Research - 10 Feb 2021