Results

• Continuous losses – Sapura Energy posted a net loss of RM6.6m in 4QFY22 compared to a net loss of RM216m in 4QFY21 mainly due to provisions for impairment of RM3.3b and RM2.1b on goodwill and assets respectively.

• Lower revenue - Quarterly revenue dropped 69% YoY to RM453m due to lower contribution from Engineering and Construction (E&C) and Operations & Maintenance (O&M), offset by higher revenue in Drilling.

• E&C still in the red – Quarterly revenue from the E&C segment plunged 88% YoY and 86% QoQ to RM142m due to lower percentage of completion recognised. As a result of higher project costs and impairments of RM1.7b, the division posted loss before tax of RM2.6b.

• Higher Drilling revenue – Quarterly revenue from Drilling rose 58% YoY but declined 10% QoQ to RM264m. However, the division posted LBT of RM3.8b mainly due to impairments of RM3.7b.

• E&P back into the red - Sapura’s E&P JV, Sapura OMV posted LBT of RM20m (vs LBT of RM12.5m in 4QFY21 and PBT of RM15m in 3QFY22).

• Declining orderbook – Sapura’s orderbook declined to RM6.6b from RM7.6b last quarter. Out of the orderbook, RM5b is expected to be booked in FY23, RM1b in FY24 and RM0.6b in FY25. Its bid book stands at RM22b. Tightened cashflow could restrict Sapura’s financial ability to bid for more jobs going forward.

• High gearing – Sapura’s debt and cash stands at RM10.6b and RM717m respectively. Following the recent winding down petitions served to its subsidiaries, Sapura was granted two court orders to begin a debt restructuring exercise by negotiating with its vendors and lenders within a year. The restructuring plan could include haircuts, issuing shares and disposal of stake in its fabrication, drilling and exploration divisions.

Earnings Outlook

• Earnings below expectation – FY22 net loss of RM8.9b and normalised loss of RM3.2 was worse than our FY22 estimate of RM2.5b while twelve months’ revenue of RM4.1b was short of our expectation of RM5.2b.

Valuation & Recommendation

• Ceasing coverage – We are ceasing coverage on the stock given the challenging earnings outlook, tightened liquidity and high debt level.

• Thus, the stock is assigned as NOT RATED with our last target price of 4.5 sen based on -2 std deviation on its 3-year mean P/B. Investors should no longer depend on any of our financial forecasts and target price in making investment decisions.

Source: JF Apex Securities Research - 21 Mar 2022