Excluding foreign exchange (FX) gains of RM134.5m, Sapura Energy (SapE) reported core net loss of RM91.7m in 2QFY24, expanding by 28.2% QoQ and 19.2% YoY. Higher project cost primarily due to delays within its Engineering and Construction (E&C) and Operations and Maintenance (O&M) segments impacted its overall margin, despite higher revenue recorded (+20.1% QoQ) with higher rig utilisation rate and progress billings. Cumulatively, the Group recorded core net loss of RM163.2m in 1HFY24, broadly flat on a YoY basis. The results are ahead of our estimated full-year net loss of RM681.3m, though below with consensus’ estimates of RM238m net loss. The variance is mainly due to better than expected operational margins after it secured new contracts, valued at RM2.8bn so far, and renegotiation on its legacy contracts. On this count, we are revising our forecasts, lowering net loss by 56%/29%/13% for FY24/25/26F. Although overall financial conditions are improving somewhat, we remain pessimistic on its PN17 regularization and debt restructuring plans in the short term. We maintain our Underperform call with higher TP of RM0.035 (from RM0.02) after accounting for the earnings revision and improvement in its liquidity position.

• Secured new orderbook worth RM1.4bn. The Group secured a contract for the provision of Offshore Transportation and Installation Services Contract in Angola, from Azule Energy Angola B.V. worth about RM1.4bn. The duration of the contract is about 2.5 years, which is expected to be completed by 4Q FY2026. With this contract, orderbook replenishment YTD is about RM2.8bn, broadly within our target. With this, current orderbook now stands at RM6.3bn, largely outside of Malaysia.

• Improved cash position, though pessimistic view remains. On a positive note, the Group’s cash position improved to RM1.16bn, 38% higher from RM840m in 1QFY24. This suggests that the Group has gained support from its clients through advances, and vendors through credit term extensions amid limited access to working capital and bank guarantees for project execution. Nevertheless, the current cash balance is still far below its existing borrowings and trade payables amounting to RM15.0bn. No significant update on its plan to regularise its PN17 status and restructure its debt load is forthcoming, though temporary relief has come from the RM1.8bn injection from the white night, and the Sapura OMV divestment. We remain pessimistic given the tight deadline for the regularization plan submission (end-November 2023), though it is highly likely a deadline extension would be sought.

Source: PublicInvest Research - 29 Sept 2023