Stripping off foreign exchange (FX) gains and other extraordinary items amounting to RM258.7m, Sapura Energy (SapE) reported core net loss of RM226.9m in 3QFY24, widening its losses by 147.5% QoQ and 76.2% YoY. Engineering and Construction (E&C) and Operations and Maintenance (O&M) segments were impacted by lower project progress and higher direct cost. Meanwhile, its Drilling segment slipped into a loss before tax (LBT) of RM42.5m from a breakeven in 3QFY23 due to completion of integrated rig drilling completion (IRDC) contract. Cumulatively, the Group recorded core net loss of RM390.1m in 9MFY24, increasing its losses by 34.7%. The results are below our and consensus estimated full-year net loss of RM297.2m and RM256.5m respectively. The variance is broadly from the underperformance of its E&C and O&M segments. The Group has successfully received approval in principle for its debt restructuring plan meanwhile, which will pave the way for court-convened meetings. The Group has also has applied for an extension to submit its PN17 regularization plan until May 2024, pending regulator’s approval. We maintain our Underperform call and TP of RM0.035.

• E&C and O&M segmental profit slipped into LBT of RM81.2m due to lower project progress executed for the quarter and higher direct cost. Similarly, the Drilling segment turned into LBT of RM42.5m due to completion of its IRDC contracts despite having higher utilisation days for the rigs. Nevertheless, Exploration and Production (E&P) segment recorded higher profit before taxation (PBT) of RM74.3m due to tax expenses arising from direct tax deductibles for the Jerun field capital expenditure.

• Strong orderbook, but challenges remain. The Group’s orderbook currently stands at RM5.4bn while its JV and associates hold another RM3.6bn. The Group also recently opened a regional office in UK to manage and pursue projects in West Africa and Mediterranean. Challenges to access working capital and bank guarantees remain however, until its financial condition is fully resolved.

• Remarkable milestone. After 21 months of receiving Restraining Orders from the Court to work on a proposed scheme of arrangement as part of its debt restructuring plan, the Group finally received approval-in-principle from its RM10.3bn lenders with the assistance of the Corporate Debt Restructuring Committee of Malaysia (CDRC) as mediator. Though this will go some way in helping the Group to progress in the process of exiting from its PN17 status, it has yet to receive regulatory approval for the extension to submit its plan.

Source: PublicInvest Research - 14 Dec 2023