Results

• Into the red – Sapura Energy posted a net loss of RM97m in 1QFY22 compared to a net profit of RM14m in 1QFY21 mainly due to forex loss of RM42.7m. Excluding the exceptional items, normalised net loss stands at RM49m due to higher net finance cost and taxes.

• Higher revenue - Quarterly revenue grew 8% YoY to RM1.47b due to higher contribution from Engineering and Construction (E&C) and Drilling to cushion the decline in Operations & Maintenance (O&M) division.

• Steady margins – EBITDA margin stood at 11% compared to 15% in 1QFY21 and 3% in 4QFY21. Profit margins remained elevated thanks to improvement from the Drilling division despite incurring COVID-19 related costs of RM42m this quarter.

• Narrowed loss QoQ – Sapura’s net loss narrowed 55% QoQ from RM216m in the previous quarter. This was due to higher revenue, higher share of profit from associates and JV and revenue growing 2% QoQ.

• Higher E&C earnings – Quarterly revenue from the E&C segment grew 17% YoY but declined 3% QoQ to RM1.13b. The division posted EBITDA of RM98m against RM97m a year ago and RM79m in the previous quarter. Yard utilisation stands at 38% while key vessel utilisation is at 52%.

• Improved Drilling performance – Quarterly revenue from Drilling rose 5% YoY and 51% QoQ to RM252m with 7 rigs operating and 7 rigs being stacked. The division posted EBITDA of RM130m vs RM110m in 1QFY21 and RM52m in 4QFY21 respectively. The improved performance came following increase in the restart of T-9 and Jaya rigs while Berani had a follow-up campaign in Ivory Coast.

• E&P back into the black - Sapura’s E&P JV, Sapura OMV posted EBITDA of RM52m (vs LBITDA of RM5m in 1QFY21 and RM12m in 4QFY21) due to higher oil price. Number of barrels lifted rose to 3.5m barrels from 3.2m in 4QFY21. Average price increased to US$64/barrel from US$46/barrel in 4QFY21.

• Clear visibility – Sapura’s orderbook stands at RM11.8b. Going forward, RM5.8b of the orderbook will be booked in FY22 and another RM5.8b in FY23 and onwards. Going forward, Sapura has submitted bids for RM51b worth of jobs worldwide including renewable energy projects.

• Stable gearing – Net debt to equity was flat at 1.1x as cash reserves increased to RM571m vs RM489m in 4QFY21.

Earnings Outlook

• Earnings below expectation – 1QFY22 net loss and revenue were below full year expectation of net profit of RM99m and revenue forecast of RM7.2b.

• Forecasts maintained - We are keeping our profit and revenue estimates for FY22 in view of improved oil price, better cost control measures and ability to replenish orderbook.

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 - 30 Jun 2021