Investment Highlights

• We maintain our BUY recommendation on Sapura Energy (Sapura) with unchanged forecasts and fair value of RM0.29/share, pegged to a 50% discount to its FY21F book value. This valuation reflects a neutral ESG rating of 3 stars.

• As highlighted in our past reports, Sapura has finally executed multi-currency facilities (MCF) agreements to refinance its existing borrowings totalling RM10.3bil for another 7 years after protracted negotiations with multiple financial institutions.

• Management has indicated that the interest rates of the new facilities are relatively similar to the earlier loans. Called MCF 2021, the package includes a conventional facility agreement which has a USD facility of US$602mil and RM906mil together with unrated sukuk murabahah under the multi-currency sukuk programme, covering US$125mil and RM6.4bil.

• The proceeds are earmarked towards full settlement of a 2014 conventional facility, a 2015 Islamic facility, a 2017 conventional facility and the existing outstanding sukuk murabahah under the multi-currency sukuk programme.

• The group has earlier secured working capital facilities of RM1.2bil, which provide headroom for the group’s RM39bil tenders (+32% QoQ). These exclude even larger prospective projects worth RM68bil amid the brightening outlook in upstream capex upcycle.

• At this juncture, the group is expected to secure the engineering, procurement, construction and installation contract for the central processing platform (CPP) for SapuraOMV Upstream Sdn Bhd’s Jerun field development in offshore Sarawak.

• We estimate that the contract value for a CPP weighing 22,000 tonnes, plus 5,300 tonnes of piles and an 8,500-tonne compression platform, could easily be worth over RM1bil.

• We are also positive on Datuk Mohd Anuar Taib, who was recently redesignated as the group CEO. He comes with a commendable track record of helming Petronas Carigali as its CEO and Petronas’ upstream division as the executive vice president. Together with the oversight of Permodalan Nasional, which has a 40% stake in the group, this reaffirms our 3-star ESG evaluation for Sapura.

• Against the backdrop of improving prospects of new jobs and underpinned by a revitalised debt profile amid more optimistic crude oil prices, the stock currently trades at an undeserved firesale FY21F PBV of 0.3x, notwithstanding expected losses for the upcoming 4QFY21 results. We are projecting an FY21F loss of RM290mil, 2.6x consensus.

Source: AmInvest Research - 31 Mar 2021