• Overview. Sapura Energy returned to headline PATAMI of RM92m in 1QFY23 largely underpinned by forex gains of RM176m stemmed from weakening ringgit. Excluding this, the company recorded core LATAMI of RM84m. Revenue declined 40% yoy to RM886m mainly due to slower construction progress in the Engineering and Construction (E&C) segment amidst the liquidity constraint. However, the impact to bottomline was minimal as it was negated by gains from cost recovery of legacy contracts. For record, there were recognition of reversal of liquidated damage and successful claims from clients for cost incurred in previous quarter that worth RM23m and RM93m respectively in 1Q23.

• Key highlights. Orderbook rose to RM8.3bn (4QFY22: RM6bn) following recent contract award.

• Against estimates: Inline. 1QFY23 revenue of RM886m made up 16% of our FY23F forecast. At this juncture, we see downside risk to our revenue forecast and orderbook replenishment assumption in the E&C segment due to (i) limited working cap, and (ii) selective bidding strategy by passing more pricing risk to its clients. As such, we cut our revenue forecast for FY23F/FY24F/FY25F by 27%/19%/33% to RM4.1bn/RM5.5bn/RM5.4bn respectively.

• Outlook. Restructuring effort remains the key focuses over the next few quarters as the company seeks to exit from its PN17 status. As part of its business continuation plan, it has withdrawn additional RM300m working capital from bank which is securitised from the sale of its Sapura 3000 vessel to Abu Dhabi Port. The transaction is expected to be completed by Aug 2022. Besides that, it is also seeking cash advance from clients to execute legacy contracts. For longer term sustainability, however, the success of its turnaround plan will hinge on reduction of its massive RM10bn borrowings as well as recapitalisation of the company’s balance sheet.

• Our call. Maintain BUY on Sapura Energy with lower TP of RM0.12 (from 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 - 28 Jun 2022