• Overview. Sapura Energy suffered huge losses of RM6.6bn in 4QFY22 mainly due to asset impairment charges worth RM5.4bn. Excluding this, core loss was at RM1.2bn as revenue dwindled 70% qoq and yoy to RM453m. Lower revenue was recognised from its E&C and O&M segments as liquidity constraint has affected project schedule, leading to recognition of foreseeable losses and higher project costs. Drilling activities, however, remain uninterrupted with revenue coming at RM263m, 58% higher yoy but 10% lower qoq.

• Key highlights. Its orderbook declined to RM6.6bn (3QFY22: RM7.5bn) while tenderbook rose to RM28bn (3QFY22: RM22bn) with greater focuses towards transport and installation (T&I) activities that utilise lower working cap.

• Against estimates: Below. FY22 revenue declined 23% yoy to RM4.1bn dragged mainly by its E&C segment. This only made up 88% of our FY22F estimate.

• Outlook. The company is at risk of triggering PN17 criteria following its kitchen sinking exercise. Notwithstanding, we believe it remains on track in executing its turnaround plan. Key focuses include (i) getting new source of funding to execute legacy contracts, (ii) disposal of non-core asset to pare down debts, and (iii) shifting project portfolio towards regional T&I and EPCC in Asia Pacific. Overall, we see the company to disintegrate its drilling business and strengthen its E&C business as the latter forms the backbone of the local O&G ecosystem.

• Our call. Maintain BUY on Sapura Energy with unchanged TP of RM0.15. We think the upcycle in O&G offshore projects should improve its earnings outlook, hence potentially leading to the agreement on its debt restructuring plan.

Source: BIMB Securities Research - 21 Mar 2022