AmInvestment maintains 'buy' on Sapura Energy amid new contract wins

KUALA LUMPUR: Sapura Energy Bhd 's 9MFY19 loss of RM293mil came within AmInvestment research's expectations although it fell below consensus estimates.

"Excluding unrealized forex gains of RM96mil, Sapura’s core loss of RM389mil is well within our FY19F loss of RM547mil, with the group expected to suffer a wider 4QFY19 loss due to seasonally lower offshore activities during the monsoon season," said the research house.

AmInvestment maintained its buy call on Sapura Energy with an unchanged fair value of 55 sen a share.

It noted that Sapura Energy's US$373mil contract to build Oil and Natural Gas Corporation Limited’s Offshore Process Platform project for the KG-DWN-98/2 NELP block has grown its FY19F contract wins by 21% to RM8.5bil to date, which is above its order book win assumption of RM6bil.

"With more contracts yet to be announced soon, we have raised our FY19F-FY21F new order book assumptions by 25%–50% to RM9bil–RM10bil, which raise FY20F-FY21F earnings by 16%–42% in view of the engineering, procurement, construction and installation (EPCI) profit recognition cycle," said AmInvestment.

The new jobs increase Sapura Energy's outstanding order book to RM16.9bil.

"As the group was recently selected as one of Saudi Aramco’s 4 new long-term agreement programme contractors for a 6-year firm period (excluding 2 optional extensions of 3 years), we expect substantive expansions from its current tender book of US$8.5bil and prospective bids of US$14.3bil," said AmInvestment

The research house added that earnings prospects for the E&E segment is improving amid better vessel utilisation. 

Fabrication yard utilisation is at 10% in 3QFY19 and is excpected to reach 40% in 4QFY19 and touch 80% towards 2HFY20F. 

It said the drilling segment's losses have ameliorated but market conditions need to significantly improve as Sapura needs to charter out 10 of 16 rigs to break even versus seven in 3QFY19 and six in 2QFY19.

Analyst Reports