INVESTMENT HIGHLIGHTS

• Sapura Energy 4QFY19 reported profit jumped to RM500m

• However, 4QFY19 normalised losses expanded to -RM709.8m

• Higher revenue recognition from E&C and drilling segments

• Orderbook remains robust at RM17.2b

• Declared a special dividend of 5.0sen

• Downgrade to NEUTRAL with a revised TP of RM0.34

Quarterly losses expanded despite higher revenue recognition. Sapura Energy Bhd’s (SEB) 4QFY19 reported profit jumped to RM500.0m from –RM31.7m loss in 3QFY19. However, after stripping out one-off gain from the disposal of Sapura Upstream to OMV AG worth RM2.7b and impairment of RM1.52b on its drilling and Engineering and Construction (E&C) assets, its normalized losses expanded to -RM709.8m in 4QFY19. This is despite higher revenue recognition during the quarter by +64.5%yoy largely attributable to both its engineering and construction (E&C) and drilling segments. Its cumulative FY19 normalised losses therefore widened to –RM1,193.2m (vs –RM592.2m in FY18), which is below ours and consensus’ expectations.

Engineering & Construction. Segment revenue climbed by +88.0%yoy however, profit (ex-impairments) was down -109%yoy respectively. The higher revenue is attributable to higher activity levels while operating losses during the quarter was mainly due to impairments on assets and goodwill as well as; lower project margins recognized for the segment.

Drilling. Segment revenue was higher by +8.5%yoy due to higher number of working rigs vs 4QFY18. However, the segment’s losses (ex-impairments) has expanded to –RM74.6m (from –RM52.3m in 4QFY18). An average of 6 rigs were in operations during the quarter with technical utilisation (uptime) of 99%.

Exploration and Production. This segment’s revenue was lower by +29.3%yoy attributable to lower oil liftings during the quarter at 1.1mboe in 4QFY19 vs 1.0mmboe in 4QFY18 as well as; lower average realized oil price during the quarter at USD62pb vs USD69pb in 4QFY19.

Source: MIDF Research - 26 Mar 2019