• Upgrade to Trading BUY (TP: RM0.06). Sapura Energy recorded a headline profit of RM31mn in 3QFY24 mainly contributed by forex gain of RM271mn and partially offset by impairment of PPE worth RM12mn. Excluding these, the company recorded core loss of RM228mn. Overall, 9M24 core loss of RM391mn was deemed as inline with our expectation. While the company’s operation remains affected by liquidity issue, this could be resolved soon as it has received the approval-in-principle from the financiers to proceed with the proposed restructuring scheme. This would pave the way for the company to regularise its financial position and to exit from its PN17 status. We expect the stock to garner buying interest from investors following the positive development. Hence, we upgrade the stock to a TRADING BUY (from HOLD) with TP RM0.06.

• Key highlights. Revenue declined 3% QoQ and 13% YoY to RM1.1bn mainly due to declining revenue contribution from Engineering and Construction (E&C) segment due to lower progress of current projects. However, revenue from Operation and Maintenance (O&M) and drilling segments were not affected and stabilising at RM160mn and RM330mn respectively. On the Exploration and Production (E&P) segment, SapuraOMV continued to post commendable performance contributing to RM180mn in share of net profit for 9M23.

• Earnings forecast. No change to earnings forecast.

• Outlook. Orderbook declined to RM5.4bn (1Q24: RM6.3bn) due to lack of new contract win amidst lack of access to working capital and bank guarantee facility. As part of the regularisation plan, the company is seeking to dispose its stake in SapuraOMV. Media has reported that it has attracted bids from Mubadala and Inpex at potential valuation of USD1.2bn (or RM5.5bn @ USDMYR of 4.6) which is slightly higher than our initial valuation of RM5bn.

Source: BIMB Securities Research - 14 Dec 2023