KUALA LUMPUR: Affin Hwang Capital Research maintained its sell call on Sapura Energy Bhd
with a lower target price of 40 sen from 73 sen previously based on 0.6x FY19E net tangible assets.
The research firm noted that the downside risks to the counter remain from potantial impairment, negative earnings surprises, uncertainty over orderbook replenishment, weak cashfows and the potential listing of its exploration and production (E&P) division.
While the listing of the E&P business is positive in the long run, Affin Hwang Research noted that the "leftover" Sapura Energy would lose its appeal to many existing investors.
"Although still at an early stage, any move towards carving out the E&P division entirely for a separate listing, may therefore not be value accretive to the currently listed SAPE."
The outlook of Sapura Energy's E&C and drilling division have been on an earnings decline.
"While oil price has been trending upwards, oil majors’ capex remains lacklustre. As such, we believe that order book replenishment risks will continue to be investors’
main concern," said the research firm.
"We cut our FY19E EPS forecast by 25%, but raise FY20E by 18% as we pencilled in a stronger RM and Brent oil assumption. We have revised our valuation methodology from SOP to P/NTA as the former is no longer viable due to expected losses."
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