Overview. Sapura Energy 3QFY22 LBT narrowed to RM649m as revenue jumped up 95% qoq to RM1.5bn. EBITDA however still negative at RM244m dragged by recognition of higher E&C project cost. Core LBT was at RM457m after excluding PPE impairment charge of RM212m arising from recognition of asset held for sale.

Key highlights. Its borrowings worth RM10.7bn remains as current liabilities as the company is working towards fulfilling additional condition prior to getting full waiver from lenders for breaching financial covenant due to negative EBITDA.

Against estimates: Below. 9M21 revenue declined 5% yoy to RM3.8bn mainly due to offshore project disruption in O&M segment which was slightly offset by higher revenue from drilling segment. 9M LBT of RM2.2bn exceeded our estimate of FY22F LBT of RM1.7bn. This was mainly due to Covid-19 cost impact.

Orderbook. Its orderbook stood at RM7.5bn underpinned by new project wins worth RM1.8bn (YTD: RM8.5bn). Meanwhile, bid books declined to RM22bn as the company focuses on higher margin jobs.

Outlook. Despite liquidity constraint, the company still manage to deliver 7 projects in 3QFY22 (YTD: 26 projects). The company currently has 59 on-going projects. In near term, the management plans to generate working cap worth RM800m through recovery of Covid-19 cost from its clients as well as reducing its project cycle time. The company has also began its asset divestment program through engagement with independent advisers which eventually will lead to a more sustainable capital structure.

Our call. Maintain BUY on Sapura Energy with unchanged TP of RM0.15 which implies 0.3x FY23F P/B. We see a little headwind for the management to execute its turnaround plan aided by new upcycle in O&G offshore projects.

Source: BIMB Securities Research - 14 Dec 2021