Sapura Energy recorded a headline profit of RM43mn in 2QFY24 mainly contributed by forex gain of RM134mn. Excluding this, the company recorded core loss of RM91mn. It is worth highlighting that it remains in the red despite 10 out of 11 rigs are under active contract. Overall, 1H24 result was below our expectation, making up 72% of our core loss forecast. Key deviation against our estimate stems from (i) weaker orderbook replenishment, and (ii) higherthan-expected operating cost. As such, we made an earnings downgrade to our FY24-26F forecast. Until the company finalise its debt restructuring plan expected by 1QCY24, we don’t expect any earnings surprise as lingering liquidity issue has affected its job wins. We downgrade Sapura Energy to a HOLD with lower TP of RM0.06 (from RM0.08).

• Against estimates: Below. 1HFY24 core LATAMI of RM163mn was below our estimate, making up 72% of our FY24F core loss forecast.

• QoQ. Revenue rose 20% to RM1.15bn mainly driven by recovery in Engineering and Construction (E&C) segment on progress of current projects. However, core loss remained largely flat at RM92mn, offset by higher operating costs from and higher finance costs.

• YoY. Revenue and PBT were largely flattish as the company continued executing current projects at hand.

• Earnings forecast. We widened our loss estimate for FY24-26F to RM372mn/RM561mn/RM644mn respectively (Table 3) as we have reduced our margin assumptions to account for higher operating costs.

• Outlook. Orderbook rose slightly to RM6.3bn (1Q24: RM5.8bn) after it secured a Transportation and Installation (T&I) contract from Azule Energy in Angola with a contract value of USD300mn (RM1.4bn). This is for Quiluma and Maboqueiro Platform for Angola NGC project.

• Proposed Restructuring Scheme (PRS) and regularization plan update. The High Court has allowed the extension for restraining order from 11th June 2023 to 10th March 2024. Meanwhile, the company has also been granted with extension up to 30th Nov 2023 to submit its PN17 regularisation plan. Recall that the PRS will include a potential financial investment from a white knight of approximately RM1.8bn. Besides that, the company targets to divest SapuraOMV with a preliminary valuation of RM2.25bn which will be used to pare down its debt involving RM10.3bn in MCF facilities.

• Our call. Downgrade Sapura Energy to a HOLD with lower TP of RM0.06 (from RM0.08).

Source: BIMB Securities Research - 29 Sept 2023