KEY INVESTMENT HIGHLIGHTS

• Sapura Energy’s recorded its first quarterly profit after 2 consecutive financial year losses

• 1QFY20 earnings came in above expectations at RM14.2m

• Earnings were boosted by healthy margins from E&C segment and leaner operation

• Orderbook remains robust and geographically welldiversified at RM14.0b as of April 2020

• FY21-22F earnings revised upward to RM54.5m and RM80.6m respectively

• Upgrade to TRADING BUY with a revised TP of RM0.113 per share

First quarterly profit after two financial years. Sapura Energy Bhd (SEB) staged a return to black with its first reported quarterly net profit of RM14.2m in 1QFY21, which was above ours and market full-year earnings expectations by >100%. This was despite its revenue declining by -16.6%yoy, mainly due to lower revenue recognition from its E&C segment. When compared against 1QFY20, revenue in 1QFY21 was lower by -16.6%yoy due to lesser project activities from its E&C segment due to the business operations restriction as a result of the implementation of Movement Control Order (MCO). Among others, this has resulted in the closure of its fabrication yard for 45 days. That said, its earnings improved by >100%yoy following better margins from the E&C segment. Similarly, on a quarterly sequential basis, both revenue and earnings were higher by +22.0%qoq and >100%qoq attributable to the abovementioned reasons.

Engineering & Construction. Segment revenue dipped by -17.0%yoy attributable to lower activity levels during the quarter which was partly due to the MCO that was implemented from 18th March 2020 until 9th of May 2020. That said, the segment’s operating profit was up by +157.9%yoy due to better margins recognised from the ongoing projects. Segment’s operating profit margin was recorded at 10.3% in 1QFY21 vs only 3.4% in 1QFY20. Meanwhile, on a quarterly sequential basis, segment revenue increased by +35.5%qoq whilst operating profit grew by +106.1%qoq.

Drilling. Segment revenue was marginally higher by +4.5%yoy at RM240.9m due to favourable USD vs MYR exchange rate movement. An average of 7 rigs was in operation during the quarter with technical utilisation (uptime) of 98.4%. That said, the segment recorded a narrower operating loss of -RM14.9m vs -RM50.9m in 1QFY20. The better performance from the drilling segment was attributable to the: (i) improved margins from rigs in operations as well as; (ii) lower interest expense.

Source: MIDF Research - 30 Jun 2020