Investment Highlights

• We maintain SELL on Sapura Energy (Sapura) with an unchanged fair value of RM0.03/share, pegged to a 50% discount to FY22F NTA of 7 sen. This valuation also incorporates a neutral ESG rating of 3 stars.

• Sapura has secured a High Court order together with its 22 wholly-owned subsidiaries to consider and approve a scheme of arrangement with its creditors as part of the group’s debt restructuring plan.

• Multiple creditors have served winding-up petitions and the High Court has also granted a restraining order against legal proceedings which will allow Sapura to engage with them for 3 months. From our channel checks, none of the companies under our coverage have significant exposure to Sapura.

• Recall that Sapura registered a RM2.3bil loss for 9MFY22 while its gross debt stood at RM10.7bil with cash of only RM590mil as at 31 Oct 2021, translating to a heavy net gearing level of 1.5x.

• As we have highlighted previously, the operational landscape for Sapura remains bleak on uncertain delivery and margin prospects over the foreseeable future given the group’s liquidity crisis together with potentially higher provisions.

• Even though job prospects are improving across the globe on a higher crude oil price environment, the pandemic’s adverse impact on Sapura’s earnings delivery is substantively worse than other service providers such as Dialog Group and Yinson which are operating in different value chains of the sector.

• In the absence of substantive 3QFY22 new contract wins, the group’s remaining order book further slid by 32% QoQ to RM7.6bil. This translates to an uncomfortably low 1.5x FY22F revenue given the group’s current liquidity crisis in which suppliers are wary of extending further credit with Sapura’s trade payables rising by 24% to RM3.3bil from 4QFY21.

• Furthermore, Sapura may not have the financial capacity to undertake new jobs against the backdrop of its debt restructuring plan while bid submissions decreased by 37% QoQ to RM22bil.

• The stock currently trades at fire-sale valuations given the prospects of further losses, which we project could translate to a negative FY23F NTA of 1.2 sen. Any equity-raising exercise would be highly dilutive to existing shareholders at the current battered share price.

Source: AmInvest Research - 11 Mar 2022