O'Mighty Capital Articles Archive

SAPNRG Turning Point Here?

omightycap
Publish date: Thu, 22 Mar 2018, 04:20 PM

See the original here

What Happened?

The stock rebounded from 40 cents all the way up to the current 55 cents (a whopping +37.5%) and analyst reports plus news started to show with the latest newly acquired order book of nearly RM 3 bn. The stock price gets a huge lift from this news and we unlikely to see the 40 cents area for quite awhile.

You can have a look on the write up by DBS talking about the new contract.

1

40 cents isn’t Bottom Yet

We think that the price had yet to bottom even though you see a sharp rebound from 40 cents over the last few days. A few points to look at…

  1. It seems though that the market had forgotten about the previous sell-off to 40 cents came due to the rumours of higher losses to be recorded in next week’s quarterly earnings. The reality of worse results coming in is still upon us. We think that the stock price will see a huge gap downwards with he release next week.
  2. The last contract is definitely a huge contract but never forget the payment wouldn’t come instantly and it isn’t one shot RM 2 bn of revenue to be realized. Assuming that margins are a solid 13% (what it was when oil was $100) you are looking at only RM45 million in net profit based on its current order book of RM17bn up till 2021.
  3. If revenue realization on the new order book isn’t fast enough, we are definitely seeing lower stock price in quarters to come. The cost mounting deteriorates profit more and more along the way. Preliminary looks at its order book, the revenue realization isn’t coming in that fast.
  4. The 13% margin estimation was during good times in the oil sector at the moment, plenty of assets are sitting and cost continues to mount margins wouldn’t likely be that solid now.
  5. The debt financing by Sapura Energy today had gone up in terms of amount and also financing rate. With a debt of 127% to equity, the higher interest rate environment play a huge role in reducing earnings. Loan financing alone already channeled plenty of cash across to operating cost and settling this problem is going to be easy.

There are just too many factors pointing the stock downwards. We recommend investors who follow us not to get involved although it seems that it is time to buy SAPRNG with the recent rebound.

Technical Analysis

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If you look at the chart, this isn’t one chart that would turn upwards quickly. At least see a reverse head and shoulders before entering.

If you buy at 40 cents and it goes all the way up from here, you are a hero. Nevertheless if our conviction of a lower price possibility in the coming months then you might regret not selling it now!


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1 person likes this. Showing 6 of 6 comments

hng33

Ok, noted with risk and reward, will now wait for Sapura result to come out next week to have better judgment before re enter back again. thank for sharing.

2018-03-22 18:56

qqq3

this guy good...respect.

2018-03-24 01:50

omightycap

Looks like its more pain...

2018-03-28 13:47

LaksaBoy

buy

2018-03-28 13:52

joekit

wah....tis qr really bad...kena tipu follow IB tp rm1.11.... please dont giv analysis or tp anymore lar....all koyak one...

2018-03-28 13:52

qqq3

this company, huge EBITA huge contracts won....go and huge impairment of Fixed Assets....but no impairment of Goodwill on consolidation.

Nothing makes sense, company playing games with accountants and analysts.

2018-03-28 16:54

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