Sapura recorded 1QFY23 core net loss of -RM203m (QoQ: -RM1,194m, YoY: -RM9.3m) which was within expectations based on our/consensus full-year net loss forecast of -RM758m/-RM580.1m. We think that it will be an uphill task for Sapura to turnaround its operations in the near-to-medium term due to: (i) heightened cost overruns in its projects; (ii) liquidity issues from difficulties to obtain funding due to its balance sheet distress as it is now officially a PN17 company; (iii) job delivery and execution risks as Sapura has yet to display a satisfactory track record in recent years; and (iv) inability to win jobs due to its challenged balance sheet. We maintain SELL on Sapura with an unchanged TP of RM0.01 based on 0.5x FY22 P/B.

Still in the red – within expectations. Sapura recorded 1QFY23 core net loss of -RM203m (QoQ: -RM1,194m, YoY: -RM9.3m) which was within expectations based on our/consensus full-year net loss forecast of -RM758m/-RM580.1m respectively. 1QFY23 core net losses was mainly adjusted for: (i) net forex gains of RM176m; (ii) RM93m of Covid-19 additional claims; and (iii) liquidated damages reversal worth RM26m.

QoQ. Net losses shrunk to -RM203m (from -RM1,194m in 4QFY22) as we note that the group’s revenue almost doubled QoQ, alongside lower operating expense (-44%)

YoY. Sapura registered a core net loss of -RM203m (from a core net loss of -RM9m in 1QFY22) which was due to significantly weaker performances from its major business segments, namely its E&C, Drilling and E&P divisions.

Outlook. As at end-April 2022, Sapura’s orderbook stood at RM8.3bn with RM23bn of bids in progress. We continue expect current hurdles and uncertainties to continue in FY23. The group’s net debt continued to deteriorate, which ballooned to RM10.2bn as 1QFY23 from RM9.9bn at end-FY22. We think that it will be an uphill task for Sapura to turnaround its operations in the near-to-medium term due to: (i) heightened cost overruns in its projects; (ii) liquidity issues from difficulties to obtain funding due to its balance sheet distress as it is now officially a PN17 company; (iii) job delivery and execution risks as Sapura has yet to display a satisfactory track record in recent years; and (iv) inability to win jobs due to its challenged balance sheet.

Forecast. We make no significant changes to our estimates post updating the group’s FY22 annual report figures.

Maintain SELL, TP of RM0.01. We maintain our SELL call and TP of RM0.01 based on 0.5x FY22 P/B. We think that Sapura will need more time and effort to turnaround its operations into profitability, which we do not foresee happening anytime soon. We are concerned over its operational liquidity from difficulties to obtain funding and its ability to win future jobs due to its balance sheet weakness.

Source: Hong Leong Investment Bank Research - 28 Jun 2022