KUALA LUMPUR: AmInvestment Research upgraded its call on Sapura Energy
(Sapura) to Buy from Hold with a higher fair value of 50 sen a share from an earlier 30 sen.
The research house said on Friday this was based on a lower 30% discount to its estimated diluted book value of 72 sen a share, following the completion of its RM4bil rights issue.
“Our earlier concerns on the 18.5% undersubscription or 1.8 billion ordinary shares out of the RM3bil rights shares issued at 30 sen a share on a five-for-three basis have been alleviated as the underwriters Maybank Investment Bank, CIMB Investment Bank and RHB Investment Bank have completely disposed of the shares without causing any significant price swings,” it said in a research note.
It had also become more confident of Sapura’s improving earnings prospects which currently stems overseas, principally in the Middle East, Brazil, Gulf of Mexico and West Africa.
It pointed out the company was selected as one of Saudi Aramco's four new long-term agreement programme contractors late last year. Hence, substantive order book expansions are still likely from
Sapura's current tender book of US$8.5bil with prospective bids of US$14.3bil.
AmInvest Research said there were highlighted in Sapura’s new orders worth RM9.3bil for FY19 to date, which translate to 2.3 times the RM2.8bil jobs clinched in FY18 and an outstanding order book of RM17.7bil – three times FY20F revenues.
In January this year, Sapura has secured three rig drilling charters and two offshore jobs worth RM760mil that include carrying out the engineering, procurement, construction and commissioning works related to relocating and tying in
Petronas floating LNG Satu from the Kanowit field to the Kebabangan cluster off Sabah, with completion expected in the third quarter of 2020.
The group’s yard’s utilisation was expected to surge 5.8 times from 5,000 tonnes in 2018 to 29,000 tonnes in 2019 and subsequently accelerate further by 28% to 37,000 tonnes in 2020, driven by the progress completions of the Pegaga and ONGC’s KG-DWN-98/2 central processing platform projects, coupled with the three wellhead platforms for the Sapura-OMV’s Gorek, Bakong and Larak wellhead platforms.
“Our only concern is the group’s drilling division as its rig utilisation rate of below 50% currently will continue to drag the group’s overall improving earnings prospects,” it pointed out.
Together with the completion of the sale of a 50% equity stake in Sapura Upstream to Austria-based OMV Aktiengesellschaft (OMV) for an enterprise value of US$1.6bil, the research house expects Sapura’s net profit to surge by 2.2 times for FY20F and 46% for FY21F from substantive cuts in interest costs, partly offset by the upstream earnings deconsolidation.
Additionally, this will cut the group’s FY20F net gearing from 1.7 times to a comfortable 0.5 times.
“The stock currently trades at an unjustified ex-price-to-book value of 0.5 times for a company poised on an earnings inflection upturn,” it said.
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