Sapura Energy sees RM1.33bil market cap wiped out after rights issue plan

PETALING JAYA: Sapura Energy Bhd’s shares got pummelled for the second consecutive trading day on dilution concerns, following the company’s announcement of a rights issue plan last Friday.

Shares in the oil and gas (O&G) service provider yesterday slid four sen, or 9.64%, to close at 37.5 sen, after 34.89 million shares changed hands.

Essentially, Sapura Energy saw another RM239.7mil in its market capitalisation being wiped out yesterday in tandem with its share price decline.

This followed a loss of RM1.1bil in its market value last Friday, after its shares fell 18 sen, or 30.3%, to close at 41.5 sen, upon announcing a cash call to raise up to RM4bil to support its future growth strategy.

According to UOB Kay Hian Research, Sapura Energy’s recapitalisation exercise would likely dampen near-term sentiment due to the significant dilution impact from the rights issue.

“Taking into account that Sapura Energy’s upcoming results for the second quarter ended July 31, 2018, will likely remain lacklusture, we view that near-term sentiment on the stock will be hugely influenced by the dilution impact at close to 30 sen,” UOB Kay Hian wrote in its report.

The brokerage has recommended a tactical downgrade on Sapura Energy to a “sell” from a “buy” previously, and has cut its target price for the counter to 29 sen from 70 sen previously.

“Our downgrade is a tactical near-term approach, which essentially reflects the huge dilution impact, the lacklustre earnings in the upcoming quarters, and the uncertainties of completing capital raising and the energy IPO (initial public offering) on time,” UOB Kay Hian said.

Meanwhile, AmBank Research has cut its fair value for Sapura Energy to 55 sen from 79 sen previously based on a 25% discount to its ex-rights book value, following the price adjustment after the group’s proposed rights issue announcement last Friday.

The brokerage, however, has maintained its “buy” recommendation on Sapura Energy. It noted that Sapura Energy’s deleveraging exercises would reposition the company on a stronger operational and financial structure to capture the rising global momentum of new engineering, procurement, construction, installation and commissioning (EPCIC) projects.

“It will cut the group’s net gearing for the financial year ending Jan 31, 2019 from 1.6 times to 0.8 times, enabling the group to releverage for the working capital required for the fresh EPCIC jobs, which are increasingly much larger in scope and value,” AmBank Research explained.

Sapura Energy proposed last Friday a renounceable rights issue of up to RM4bil involving rights shares priced at 30 sen each on a five-for-three basis, with one free warrant for every 10 rights shares subscribed, together with new Islamic redeemable convertible preference shares (RCPS) at 41 sen each to be allocated on a ratio of two RCPS-to-five shares.

The warrants are exercisable at any time within seven years at 49 sen each, while the RCPS, which carries a dividend rate of 5%, can be converted only upon the maturity at the end of five years at a ratio of one RCPS for one new share.

Given the massive dilution from the cash call, Affin Hwang Capital Research has downgraded Sapura Energy to a “sell”, with a lower target price of 32 sen compared with 65 sen previously.

Contrary to the majority view, CIMB Research has maintained its “add” recommendation on Sapura Energy following the latter’s proposed rights issue, with a marginally higher target price of 65 sen, compared with 64 sen previously.

“We view the capital-raising exercise as necessary medicine for Sapura Energy to get back on its feet and be able to take advantage of the nascent upturn in O&G Capital expenditure (capex) spending,” CIMB Research said.

“We advise investors to accumulate now and buy even more on dips to ride the cyclical O&G capex recovery, the Sapura E&P listing and Sapura Drilling tie-up,” it added.

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