Results

• Impairment provision dragged profit into the red

• Sapura Energy posted a net loss of RM172.9m in 4QFY17, improving 87% YoY from a net loss of RM1.29bn in 4QFY16. The loss was mainly due to provision for impairment of RM283m for the Drilling division (RM161m) and Engineering and Construction (E&C) division (RM123m). Excluding the provision, normalised PATAMI for the quarter was RM109.8m

• Lower revenue - Quarterly revenue fell 29% YoY to RM1.81bn following decline in revenue from Drilling and Energy divisions.

• E&C led QoQ growth – Revenue from E&C increased 7.7% YoY but declined 26% QoQ to RM1.16bn.

• Slower drilling division – Revenue from drilling dropped 44% YoY and 14% QoQ to RM397m as utilisation rate dropped to 50% with 8 rigs being stacked.

• Energy division– Revenue decreased 16% YoY due the cessation of Berantai Risk Service Contract but jumped 40% QoQ to RM274.1m after lifting 1.0 MMboe in at US$51/barrel vs 0.8 MMboe in 3QFY17 @ US$45/barrel. Management guided that its EBITDA breakeven price ranges between US$30 to US$35/barrel.

• Contract wins worth RM6.3bn – In the past twelve months, Sapura has secured jobs totalling RM6.3bn.

• Depleting orderbook – The Group’s orderbook was slightly lower at RM16.7bn compared to RM17.2bn in 3QFY17. Going forward, RM5.5bn of the orderbook will be booked in FY18 followed by RM3.1bn in FY19 and RM8.1bn in FY20 and onwards.

Earnings Outlook

• Above expectation – Twelve months’ normalised net earnings of RM489m came above our expectation of RM420m while full year revenue of RM7.65bn was also higher than our FY17 target of RM7.47bn.

• Earnings forecast maintained – We are keeping our forecasts for FY18 and FY19.

• Risk – The group faces challenges in replenishing its orderbook amid tough operating environment despite

recent gains in oil prices. Management expects oil majors to remain cautious and significant improvement would come after 15 months when capex starts to flow.

• Improved gearing – Net debt/equity ratio was slightly lower at 1.16x vs 1.19x in 3QFY17 as cash balance improved to RM3.5bn from RM2.82bn in 3QFY17.

Valuation & Recommendation

• We are keeping our recommendation at HOLD with an unchanged target price of RM1.75 based on FY18 EPS with 20x forward PER.

Source: JF Apex Securities Research - 3 Apr 2017