PETALING JAYA: Sapura Energy Bhd ’s earnings turnaround for the full year of financial year 2017 (FY17) has caught several research houses by surprise.
This is because they had expected the oil and gas services gas provider’s results to come in lower amid the challenging business landscape.
Having begun on a strong footing in FY18, analysts expect the group’s engineering and construction (E&C), and drilling segments to drive earnings, moving forward, backed by its RM16.7bil orderbook.
Sapura Energy, on Friday, posted a net profit of RM208.3mil on revenue of RM7.7bil in FY17 versus a hefty full-year net loss of RM791.6mil and revenue of RM10.2bil in FY16.
Maybank Investment Bank Research (Maybank IB) raised Sapura Energy’s FY18 earnings by 2.1 times, to account for lower drilling operating expenditure and higher profits from associates.
“We still expect FY18 earnings to come in lower year-on-year (y-o-y), despite the earnings upgrade.
“The overall sentiment has improved and we see Sapura Energy as a direct proxy in the recovering oil and gas industry,” Maybank IB said in its report, rating Sapura Energy a “buy”, with a 12-month target price of RM2.30.
The research house said apart from Sapura Energy’s outstanding orderbook of RM16.7bil as at January 2017, the group’s fourth quarter FY17 net loss of RM172mil comprised RM228mil one-off from the impairment of drilling and E&C assets, partly mitigated by a RM55mil net foreign exchange gain.
“Excluding this, Sapura Energy’s core net profit of RM69mil took FY17 earnings to RM447mil, above our and consensus’ estimates,” Maybank IB said, adding that the proposed one sen interim dividend was also a surprise.
Maybank IB expects a 23% y-o-y fall in earnings per share (EPS) due to the absence of Berantai risk service contract (RSC) earnings, which was de-consolidated since the second half of 2017.
The group has targeted capital expenditure (capex) spend of about RM800 to RM900mil in FY18 for its energy operation, higher than the RM384mil spend in FY17.
The company, previously known as SapuraKenchana Petroleum Bhd, embarked on a corporate rebranding exercise and changed its name to Sapura Energy a week before it announced its full year FY17 results.
Sapura Energy shares rose 6 sen to close at RM1.88 yesterday, with about 9.3 million shares traded.
Meanwhile, Public Investment Bank (PublicInvest) said Sapura Energy’s full year FY17 results exceeded its expectations, meeting above 100% of revenue estimates and exceeced above 100% profit after tax and minority interest (Patami) level.
The research house kept its “outperform” call on the stock, but with a lower target price of RM2.08 based on blended sum-of-parts valuation.
This is after recognising the continued weakness in the group’s drilling division, coupled with lower energy performance since there were no contributions from the Berantai RSC from FY18 onwards.
“The group’s performance will be underpinned by total contract wins of RM6.3bil since February 2016. Stripping off the impairment, Sapura Energy’s core Patami would have recorded RM110.4mil,” PublicInvest said.
The research house said Sapura Energy’s E&C operations remained stable, with execution of projects in Malaysia, Vietnam, Australia, India, Mexico and Turkey.
On its drilling segment, it expects to see an average of eight rigs operating, with two to come offline as contract expires.
The company, which has a market value of RM11.3bil, has increased its cash and cash equivalents to RM3.5bil now, from RM1.57bil in FY16. Its net debt-to-equity ratio dropped to 1.16 times in FY17 from 1.34 times in FY16.
The group said it would continue with its aggressive expansion on SK310 B15 Field development off east Malaysia, with first gas anticipated before end of FY18. The SK408 development plans for Gorek and Larak are currently in progress as planned.
Apart from that, all of its six pipelay vessels in Brazil are in full operations, running at about 96% capacity. For FY17, Brazil operations posted about RM280mil worth of associate contributions.