Sapura recorded 1Q22 core loss of -RM9.2m (QoQ: -RM76.0m, YoY: -RM11.5m), which we deem to be in-line with our (FY22f: RM94.1m) expectations but above consensus’ (FY22f: -RM56.5m) forecast for FY22 as we expect its results to improve sequentially due to higher oil prices and higher expected earnings from its E&C and E&P division. We do not expect the bad monsoon weather impact in 1Q22 to recur in the following quarters. 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. Its current orderbook cover is at 2.2x.

In-line with expectations. Sapura recorded 1Q22 core loss of -RM9.2m (QoQ: - RM76.0m, YoY: -RM11.5m), which we deem to be in-line with our (FY22f: RM94.1m) expectations but above consensus’ (FY22f: -RM56.5m) forecast for FY22 as we expect to see sequential improvements in Sapura’s results in the coming quarters from higher work activities. We arrived at our 1Q22 core earnings after adjusting for (i) non operational forex loss of RM45.0m and (ii) one-off debt and derivatives refinancing cost of RM48.0m. No dividends were declared for the year as expected.

QoQ. Sapura recorded a lower core net loss of -RM9.2m (from -RM76.0m) due to higher revenue of 2% and lower operational costs (-7%).

YoY. Sapura’s lower core loss of -RM9.2m (from -RM11.5m) was due to better showing from its drilling division despite a -59% fall in its E&C contribution.

Outlook. As at 1QFY22, Sapura’s orderbook stands at RM11.8bn with RM25bn of bids in progress and RM29bn in bids already submitted. Sapura will continue to implement its various cost saving initiatives to improve on its margins. We view that the higher oil prices of late would result in higher work activity for its E&C division and it will directly translate into higher earnings for its E&P division, which is experiencing a pick -up in production volumes. Its drilling division is also expected to remain buoyant, as seen in the current quarter’s results. Going forward, Sapura is planning to take up more gas projects and it is looking to expand more into the renewable wind energy business to prepare itself for the global energy transition into greener fuels.

Forecast. We maintain our FY22-23f earnings forecast as we expect sequential improvements in Sapura’s results. We believe that Sapura will be profitable in FY22.

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) improving operational efficiencies, (ii) strong and stable oil prices and (iii) improved prospects on contract wins from the Middle East and offshore wind related projects.

Source: Hong Leong Investment Bank Research - 30 Jun 2021