Kenanga Research & Investment

Sapura Energy Berhad - Sustained Losses

Publish date: Tue, 28 Jun 2022, 09:22 AM

The group’s losses narrowed sequentially, beating expectations, thanks to greater job progression and successful commercial settlements. Nonetheless, YoY still saw losses widening on the back of slower works. The company has been recently classified as PN17, with its auditors expressing material uncertainty relating to its going concern status. As such, with its financials looking highly unsustainable and outlook remaining bleak, we maintain our UP call and TP of RM0.005.

1QFY23 better than expectations. 1QFY23 core loss of RM84m (arrived after stripping-off net forex gains) came in better than expectations at only 14% of our and consensus full-year loss estimates, mainly due to the better-than-expected E&C contributions. No dividends were announced, as expected.

Sequentially narrowed losses, although wider losses YoY. QoQ, core losses narrowed down from almost RM1.2b last quarter. This was largely due to the better E&C contributions, which saw its revenue more than quadrupled following greater project execution. The quarter was also partially bumped up by successful commercial settlements, which includes RM93m from additional claims and RM26m from LD reversals. However, YoY, losses widened by 41%, in tandem with the deteriorated revenue, on the back of slower works done for its E&C following several project completions, coupled with lower rig utilisation and charter rates for its drilling segment.

Suffering from unprecedented challenges. The stock was recently classified under PN17, with their auditors highlighting material uncertainty related to its going concern status. The group still carries an unsustainably high debt of ~RM10.7b – all of which are classified as short-term borrowings in its balance sheet, with the group having recently written off 99% of its equity book value in FY22. The group is still finding access to credit facilities incredibly challenging given its dire financials. As such, it is continuing its restructuring efforts in order to remain afloat, which includes renegotiation of its legacy contracts and with lenders over its debts, as well as implementation of a divestment plan. On a more positive note, the group had recently managed a successful drawdown of a RM300m working capital loan, securitised against the proceeds of disposal of its Sapura 3000 asset, which is expected to be completed in July. This is expected to help ease its liquidity issues at least for the next couple of months.

Maintain UNDERPERFORM, with unchanged TP of RM0.005 – pegged to 0.5x PBV on its 1QFY23 net assets. Post-results, we lowered our FY23E/FY24E loss assumption by 18%/22%, after adjusting for better E&C contributions.

Risks to our call include: sooner-than-expected successful restructuring returning the company to the path of profitability.

Source: Kenanga Research - 28 Jun 2022

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