Sapura recorded a 4QFY21 core loss of -RM76.0m (QoQ: -RM15.8m, YoY: - RM963.2m) bringing FY21 core loss to -RM80.3m (YoY: -RM1,401.5m), which was below ours’ (FY21f: RM0.7m) but above consensus’ (FY21f: -RM112.5m) net loss forecast for FY21. The weaker than expected results were mainly attributable to higher than expected operational cost during the quarter due to Covid-19 and the monsoon season. On a more positive note, Sapura has secured RM1bn in contracts for its E&C division. Maintain BUY with unchanged TP of RM0.15, based on 0.3x FY22 P/B as we believe that its financial performance is likely to improve going forward despite its shortcomings this quarter. Its current orderbook cover is at 2.6x.

Below expectations due to higher Covid-19 cost. 4QFY21 core loss of -RM76.0m (QoQ: -RM15.8m, YoY: -RM963.2m) and FY21 core loss of -RM80.3m (YoY: - RM1,401.5m), was below ours’ (FY21f: RM0.7m) but above consensus’ (FY21f: - RM112.5m) net loss forecast for FY21 due to higher than expected Covid-19 cost. We arrived at our FY21 core earnings after adjusting for (i) forex loss of RM28.5m (ii) gain on disposal of -RM37.5m (iii) one-off cost from the postponement of works into the monsoon season as a result of Covid-19 amounting to RM113.2m and (iv) other items amounting to -RM24.3m. No dividends were declared for the year as expected.

RM1bn in contract wins for E&C. Sapura has secured 6 contracts worth a total of RM1bn for its E&C division. The most significant contract secured was the EPCC contract for the full field development of phase 4a facilities in the North Malay Basin from Hess petroleum under the Petronas frame agreement - package B. We believe that the aforementioned contract constitutes more than c.50% of the RM1bn in contracts secured. The works are expected to be completed by 1QFY25.

QoQ. Sapura recorded a wider core net loss of -RM76.0m (from -RM15.8m) due to higher operational costs (+13%) despite revenue only rising by 9%.

YoY. Sapura’s lower core loss of -RM76.0m (from -RM963.2m) was due to better showing across all divisions from cost cutting measures implemented in FY21.

YTD. Lower YoY core loss of -RM80.3m (from -RM1,401.5m) was primarily due to cost cutting measures implemented to date. Sapura has realised RM430m of its targeted cost saving initiatives so far.

Outlook. As at 4QFY21, Sapura’s orderbook stands at RM13.7bn and its tenderbook currently stands at c.RM31.5bn (>50% gas development projects). Sapura will continue to implement its various cost saving initiatives. We view the aforementioned RM1bn contract win positively and we expect to see some improvement in 1QFY22 due to the recovering O&G industry. We also view its foray into the wind energy space positively and expect the improvement in production from its SK408 field to boost its profits in FY22 and FY23. We also believe that successful global vaccination rollouts could lift the O&G market up and potentially result in more contract wins for Sapura.

Forecast. We maintain our FY22-23f earnings despite the recent underperformance as we expect its margins and revenue to improve on the back of a higher orderbook.

Maintain BUY at TP of RM0.15. We maintain our BUY call with a TP of RM0.15 based on 0.3x FY22 BVPS as we remain positive on Sapura due to its (i) recent string of contract wins, (ii) improved operational efficiency and (iii) improved prospects on contract wins from the Middle East and offshore wind related projects.

Source: Hong Leong Investment Bank Research - 28 Apr 2021