Results

• Quarterly loss – Sapura Energy posted a net loss of RM136m in 1QFY19 vs a net profit of RM27m in 4QFY18. The loss was mainly attributed to continued losses in the Drilling division.

• Lower revenue - Quarterly revenue fell 40% YoY to RM1.05b following decline in revenue from Engineering & Construction (E&C) and Drilling divisions due to seasonal factor.

• Stable QoQ – 1QFY19’s net loss of RM136m showed improvement from normalised net loss of RM153m in 4QFY18. Quarterly revenue was lower after dropping 11% QoQ.

• E&C returned to the black –1QFY19 revenue from the E&C segment decreased 45% YoY and 1% QoQ to RM666m. The unit posted a PBT of RM37m compared to a loss before tax of RM22 in 4QFY18 thanks to contribution from joint venture and associates especially from Brazil.

• Drilling still bleeding – Quarterly revenue from Drilling dropped 52% YoY and 20% QoQ to RM183.4m with 5 rigs operating and 10 rigs being stacked. The drilling division loss before tax widened to RM69m vs loss of RM52m in 4QFY18.

• Lower E&P performance – 1QFY19 revenue from Exploration and Production (E&P) increased 8% yoY but dropped 27% QoQ to RM210m after lifting 1.1 MMboe in at a higher price of US$70/barrel vs 1.1 MMboe in 4QFY18 at US$69/barrel. PBT decreased 65% QoQ to RM9m despite higher crude oil prices and steady production due to lower composition of oil compared to gas, which fetches a lower price.

• Steady orderbook – Orderbook remains strong at RM16.7b after winning RM4.5b worth of new contracts so far this year, including RM1.8b secured recently. Sapura Energy is bidding for US$13.1b worth of jobs globally. Going forward, RM5.2b of the orderbook will be booked in FY19F followed by RM3.8b in FY20F and RM7.7b in FY21F and onwards.

• Higher gearing – Net debt of equity inched up to 1.61x (from 1.56x in 4QFY18) as cash dwindled to RM1.4b from RM1.7b in 4QFY18. Management is considering the listing of the E&P division to raise working capital.

Earnings Outlook

• Earnings within expectation – 1QFY19 net loss of RM137m is below our FY19 estimate of RM135m net profit but within our expectation while quarterly revenue make up 15% of full year estimate due to 1QFY19 being in the low season.

• Earnings forecast maintained – We are keeping our forecasts for FY19 and FY20 in anticipation of improved performance in the coming quarters and better prospects as shown by rising capex by oil companies around the world.

Valuation & Recommendation

• We are keeping our recommendation at BUY with an unchanged target price of RM0.80 based on 0.5x P/B and a lower NTA of RM1.60 per share.

Source: JF Apex Securities Research - 3 Jul 2018