Recent movement of higher oil prices would result in higher work activity for Sapura Energy Bhd's exploration and production (E&C) division, which will directly translate into higher earnings in the future, according to Hong Leong Investment Bank Bhd (HLIB Research)

Analyst Low Jin Wu said the integrated oil and gas services provider is experiencing a pick-up in production volumes in its E&C division.

"As of the first quarter (Q1) ended April 30, 2021, Sapura's order book stood at RM11.8 billion with RM25 billion of bids in progress and RM29 billion in bids already submitted," he said in a research note today.

Low said Sapura would continue to implement its various cost-saving initiatives to improve its margins.

"Its drilling division is also expected to remain buoyant, as seen in the current quarter's results," he said.

Low said Sapura had planned to take up more gas projects while considering expanding into the renewable wind energy business to prepare itself for the global energy transition into greener fuels.

"We maintain our FY22-FY23 earnings forecast as we expect sequential improvements in Sapura's results. We believe that Sapura will be profitable in FY22," he added.

HLIB Research has maintained a 'Buy' call for Sapura with a target price of 15 sen per share, with a positive stance on improving operational efficiencies, strong and stable oil prices, and improved prospects on contract win from the Middle East and offshore wind-related projects.

Sapura's Q1 incurred a net loss of RM97.07 million from a net profit of RM14.21 million recorded in the same period a year ago, dragged by the unfavourable effect of the US dollar exchange rate against the ringgit and lower share of profit from associates and joint ventures.  

Its Q1 revenue increased 8.4 per cent to RM1.47 billion from RM1.36 billion posted previously, on the back of higher revenue from the engineering and construction and drilling business segments in line with the progress of projects being executed and higher average daily rates.