• Sapura Energy 1QFY20 reported loss narrowed by - 40.6%yoy to -RM109.1m

• Higher revenue recognition from E&C and drilling segments

• Cumulative contract wins of RM2.3b year-to-date

• Orderbook remains robust at RM17.3b

• Maintain NEUTRAL with an unchanged TP of RM0.34

Quarterly losses narrowed with higher revenue recognition. Sapura Energy Bhd’s (SEB) 1QFY20 reported losses narrowed by - 40.6% to –RM109.1m from –RM183.8m loss in 1QFY19. Meanwhile, its normalized loss after excluding one-off non-operational items of RM17.9m came in at -RM127m which is lower by -30.9%yoy. This is primarily driven by higher revenue recognition during the quarter by +93.2%yoy largely attributable to both its engineering and construction (E&C) and drilling segments.

Improved revenue recognition across segments. Despite coming in below ours and consensus’ quarterly earnings expectations, we note that respective segment performance have gradually improved following consistent orderbook replenishment exercise across the segments and improved operational environment in line with improvement in global crude oil price.

Engineering & Construction. Segment revenue and profit surged by +110.8%yoy and >100%yoy respectively. The higher revenue is attributable to higher activity levels during the quarter which is also in line with industry progress.

Drilling. Segment revenue was higher by +25.6%yoy due to higher number of working rigs vs 1QFY19. Furthermore, the segment’s losses have also narrowed by -25.9%yoy to –RM50.9m (from –RM68.7m in 1QFY19). An average of 5 rigs were in operations during the quarter with technical utilisation (uptime) of 99%.

Exploration and Production. 1.1mboe were lifted during the quarter which is similar to that of 1QFY19 with a lower average realized oil price during the quarter at USD69pb vs USD70pb in 1QFY19.

Source: MIDF Research - 28 Jun 2019