• Overview. Sapura Energy recorded a headline PATAMI of RM10mn in  3Q23 aided by (i) termination settlement of RM65mn, and (ii) forex  gain of RM151mn. Revenue declined by 12% YoY to RM1.3bn  however but core EBITDA turned positive to RM107mn from LBITDA  of RM244mn in 3Q22 thanks to smaller exposure to unprofitable  legacy contracts. On QoQ basis, core loss widened to RM129mn  (2Q23: RM77mn) potentially due to higher mobilisation costs for 3  tender rigs which were reactivated in the quarter.

• Key highlights. Orderbook declined to RM6.8bn (2Q23: RM7.7bn) whereas orderbook under JV entities stood at RM5.7bn. On QoQ  basis, all segments recorded weaker PBT except for SapuraOMV. It  suffered a loss in 2Q23 due to dry Kanga-1 well drilled in Dampier  subbasin permit WA-412-P offshore Western Australia. There are  also 2 exploration wells drilled in 3Q23 in Mexico but the result will  only be known in 4Q23.

• Against estimates: Inline. 9MFY23 EBITDA of RM419mn came in  within our estimate, accounting 75% of our FY23F forecast.

• Outlook. The company has difficulties to replenish its orderbook  amidst limited access to bank guarantees and working capital  facilities during the restructuring phase. This has impacted the  engineering and construction (E&C) and operating and maintenance  (O&M) segments. Notwithstanding, earnings are expected to come  in stronger in 4Q23 to be driven by recovery in drilling segment. To  recap, 3 idle tender rigs (T-10, T-11 and T-12) were reactivated in  3QCY22 which boosted the number of operating rigs to 10 out of 11  rigs. However, the result of its exploration wells could pose downside  risk to 4Q23 result.

• Our call. Maintain a BUY call on Sapura Energy with unchanged TP of  RM0.12. We expect a favourable debt restructuring plan amidst a  strong recovery in drilling rig segment.

Source: BIMB Securities Research - 8 Dec 2022