Results

• Wider losses – Sapura Energy posted a reported net profit of RM500m in 4QFY19 as compared to a reported net loss of RM2.29b in 4QFY18. However, on a normalised basis, Sapura posted a net loss of RM590m in 4QFY19 against a net loss of RM153m in 4QFY18.

• Exceptional items - The results include RM2.66b gain from disposal of 50% stake in its Exploration and Production (E&P) division to OMV as well as provisions for impairment of asset (RM1.4b) and goodwill (RM108m).

• Higher revenue - Quarterly revenue rose 65% YoY to RM1.49b mainly due to higher revenue from Engineering & Construction (E&C: +88%) and Drilling (+9%).

• Lower QoQ – 4QFY19’s normalised net loss of RM590m widened 75% QoQ from RM31m in 2QFY19. Quarterly revenue was flat after shedding 1% QoQ as higher revenue from E&C (+31%) and Drilling (+1%) was offset by higher corporate expenses.

• E&C dipped into the red – 4QFY19 revenue from the E&C segment increased 88% YoY and 31% QoQ to RM1260m. However, the division posted a normalised loss before tax (LBT) of RM176m vs PBT of RM40m in 3QFY19 due to a one-off provision following a project delay.

• Continuous loss in drilling – Quarterly revenue from the Drilling increased 9% YoY and 1% QoQ to RM250m with 6 rigs operating and 8 rigs being stacked. Loss before tax widened to RM75m vs loss of RM12m in 3QFY19. Management expects utilisation rate to improve with the mild recovery in demand for tender rigs.

• Lower E&P performance – Following the sales of 50% stake to OMV, the E&P unit has been reclassified as discontinued operations. Its 4QFY19 revenue increased 29% YoY and 31% QoQ to RM203m after lifting 1.1 MMboe at a lower price of US$62/barrel vs 1.1 MMboe in 3QFY18 at US$79/barrel. Quarterly PBT declined 61% YoY and 73% QoQ to RM10m amid steady production but lower crude oil prices.

• Strong orderbook – Orderbook eased to RM17.2b from RM18.6b last quarter. Going forward, RM6.9b of the orderbook will be booked in FY20 followed by RM4b in FY21 and RM6.3b in FY22 and onwards.

• Lower gearing – Net debt to equity dropped to 0.64x (from 1.73 in 3QFY18) following cash proceeds from the rights issue and stake sale to OMV.

Earnings Outlook

• Earnings below expectation – 9MFY19 normalised net loss of RM883m is below our FY19 estimate of RM343m due to surprise loss in E&C while quarterly revenue exceeded expectation after hitting 108% of our full year estimate.

• FY20 forecast maintained – We are keeping our revenue forecast for FY20 and introduce our FY21 estimates with potential growth as first gas is expected from the SK408 in end of CY2019 as well as improvement in the E&C and Drilling segments.

• We expect earnings growth to be flat in FY20 before improving in FY21 as the gradual pickup in global capex spending opens up opportunities. Sapura is bidding for RM45b worth of jobs worldwide with more than half of its bid book coming from the Middle East & Africa region.

Valuation & Recommendation

• We are keeping our recommendation at BUY with an unchanged target price of RM0.50 based on 0.5x P/B with a BV/share of RM0.99.

Source: JF Apex Securities Research - 26 Mar 2019