• Maintain Trading BUY (TP: RM0.06). Sapura Energy recorded a large headline loss of RM715mn in 4QFY24 mainly due to (i) loss at exploration and production (E&P) segment due to impairment, (ii) forex loss of RM126mn, and (iii) loss at engineering and construction (E&C) segment potentially due to project cost overruns to complete legacy projects including ONGC’s KG-DWN-98/2 Central Processing Platform. Overall, FY24 core loss of RM966mn exceeded our initial core loss estimate of RM372mn. We expect the company to finalise its PN17 regularisation plan soon ahead of the submission deadline of 31st May 2024. We expect a favourable outcome from its proposed restructuring scheme (PRS) amidst the upcycle in O&G development projects. Hence, we maintain our TRADING BUY recommendation on Sapura Energy with TP RM0.06.

• Key highlights. Revenue declined 13% YoY to RM1.1bn mainly dragged by drilling segment which fell by 33% to RM294mn following the completion of I-RDC contract in 4QFY23. However, LBT narrowed to RM714mn from RM3.3bn in the absence of impairment of PPE and goodwill amounting to RM2.6bn in 4QFY23. Despite continuous losses, it maintained its net debt position at RM9.5bn. During the quarter, there were issuance of 2.4bn of new ordinary shares following full conversion of RCPS-I at issue price of RM0.41/share.

• Earnings forecast. No change to earnings forecast.

• Outlook. Orderbook declined to RM5bn (3Q24: RM5.4bn) due to lack of new contract win amidst lack of access to working capital and bank guarantee facility. However, the company remains committed to restructure its debt burden to a sustainable level via the PRS of which it has obtained the approval-in-principal from majority of its financiers. The company is also expected to submit its PN17 regularisation plan to the authorities no later than 31st May 2024. Key to the regularisation plan and PRS is the divestment of SapuraOMV which is on target for completion.

Source: BIMB Securities Research - 26 Mar 2024