KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research has cut Sapura Energy
’s target price to RM1.59 from RM2.01 to account for potential further write down in drilling assets due to drop in rig utilisation.
It explained on Tuesday the lower target price was after it rolled forward its valuation to FY19 price-to-book value (P/BV) and peg it to a lower PBV of 0.7 times from 0.9 times.
Malaysia’s largest oil and gas (O&G) service provider reported 1Q18 core net loss of RM18.6mil, which was below HLIB Research (RM285mil profit) and street estimate (RM312mil profit).
Earnings fell 75% year-on-year to RM27.53mil. Revenue fell by about 8.9% on-year to RM1.77bil compared with RM1.94bil previously.
The factors for the core net losses were weaker than expected drilling rig utilisation and rates as well as higher than expected effective tax rate.
HLIB Research said that in 1QFY18, Sapura Energy posted core loss versus profit of RM146.6m a year ago. This was mainly underpinned by (i) lower profit before tax (PBT) from drilling segment due to expiry of contracts in the quarter and lower charter rates and (ii) higher effective tax rates caused by timing differences of taxes for its subsidiaries across different tax jurisdictions.
Nevertheless, the exploration and commissioning (E&C) segment reported higher PBT due to higher work order and higher JV contributions due to higher number of JV vessels worked.
Quarter-on-quarter, Sapura Energy reported core net loss core due to (i) higher effective tax rate due to timing differences (ii) lower energy division contribution due to drop in lifting volume and (iii) lower JV contributions due to seasonally lower T&I activities.
“Drilling division was weak in 1QFY18 with only seven rigs working, one rig idle and eight more rigs cold stacked.
“Rig earnings would be weaker in the quarters ahead with two more rigs coming off charter in 2Q18 and 3Q18. Thus, we expect a significantly weaker FY18 for drilling segment.
“E&C segments expected to be stronger in FY18 due to higher orderbook replenishment and full contribution from all 6 Petrobras JV vessels.
“Despite lower lifting volume expected, the energy division is expected to fare better in FY18 due to better than expected realized crude prices.
HLIB Research said the execution risks are prolonged low oil price and delay in contract award.
“Our FY18/19/20 core profit forecast is cut by 47%/17%/13% to account for lower rig rates and utilisation.
“Rating Sell. FY18 is expected to be weaker as the recovery in energy and E&C divisions would not be sufficient to offset the weakness in drilling,” it said.
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