Results

• Earnings declined – Sapura Energy posted a net loss of RM216m in 4QFY21 as compared to a net loss of RM4.2b in 4QFY20 due to absence of RM3.28b impairments in 4QFY20.

• Earnings below expectation – FY21 net loss and revenue were below expectations, against our net profit of RM65m and meeting 86% of FY21 revenue forecast of RM6.2b.

• Higher revenue - Quarterly revenue grew 30% YoY to RM1.44b due as higher contribution from both Engineering and Construction (E&C) cushioned the decline in Drilling division.

• Lower QoQ – Sapura’s net loss came against a net profit of RM17m in the previous quarter. This was despite revenue growing 9% QoQ as both E&C and Drilling posted revenue growth. The loss was due to higher costs related to COVID-19 (RM286m) and working during the monsoon season (RM149m).

• Improved E&C revenue – Quarterly revenue from the E&C segment grew 49% YoY and 7% QoQ to RM1.28b. However, the division posted loss before tax of RM10m against net loss of RM2b a year ago and PBT of RM156m in the previous quarter.

• Drilling losses narrowed – Quarterly revenue from Drilling declined 34% YoY but rose 25% QoQ to RM167m with 6 rigs operating and 8 rigs being stacked. The division posted a loss before tax of RM61m (vs losses of RM2b in 4QFY20 and RM73m in 3QFY21 respectively).

• E&P posted loss - Sapura’s E&P JV, Sapura OMV posted loss before tax of RM12.5m (vs PBT of RM33m in 3QFY21) due to higher taxation. Number of barrels lifted rose to 3.2m barrels from 2.9m in 2QFY21 following higher production from SK408 fields. Average price increased to US$46.1/barrel from US$32.2/barrel in 3QFY20.

• Secured RM1b contracts – In a separate announcement, Sapura secured 6 E&C contracts with a combined value of RM1b, namely:

- Variation order from Mubadala Petroleum

- EPCC contract from Hess Exploration and Production Malaysia BV for Full Field Development

- Supply, maintenance, delivery, installation, testing and commissioning of Total Management System and SETEL for Petronas Dagangan

- Work order for Bakau NAG Development Project from Petronas Carigali

- Work order for Bayan Gas Redevelopment Phase 2 Project from Petronas Carigali

- Engineering, procurement and construction of a wellhead platform from Brunei Shell Petroleum

• Clear visibility – Sapura’s orderbook stands at RM13.7b. Going forward, RM6.9b of the orderbook will be booked in FY22 and another RM6.8b in FY23 and onwards. Going forward, Sapura has submitted bids for RM31.5b worth of jobs worldwide including renewable energy projects.

• Stable gearing – Net debt to equity inched up to 1.1x (from 1.06x in 3QFY21) as cash reserves declined to RM489m vs RM500m in 3QFY21. The management has secured a 7-year refinancing with a working capital facility of RM1.2b.

Earnings Outlook

• Forecasts lifted - We are raising our profit and revenue estimates for FY22 by 15% and 16% respectively in view of its resilient ability to replenish orderbook and improved oil price.

Valuation & Recommendation

• We are keeping our recommendation at BUY with an unchanged target price of RM0.17 based on 3- year mean P/B and a NTA of RM0.60 per share.

Source: JF Apex Securities Research - 28 Apr 2021