Sapura Energy likely to see margin pressure in FY20

KUALA LUMPUR: Affin Hwang Capital research expects Sapura Energy Bhd to remain in the red in FY20 despite narrowing losses due to poor E&C margins.

In a note, the research house said E&C will likely see some margin pressure even as yard utilisation is projected to improve significantly from the previous year.

"The associate profit could also be weaker on lower renewed charter rates as two Brazil pipe lay support vessel (PLSV) contracts are expected to expire in July and Sept19.

"Nevertheless, we remain positive on the E&P division as production levels will see a ramp up in FY21 once the SK408 Gorek, Larak, Bakong (GLB) field achieves first gas by end-2019, it said.

However, the drilling division is expected to help narrow overall losses as rig utilisation improves from the current 33% to about 55% by end-FY20. 

"Assuming all goes well, the drilling division will likely see profit breakeven by 3QFY20."

Affin Hwang cut its FY20 profit forecast to a loss and slashed FY21-22E profits by 49% to 59% after imputing lower E&C and drilling margins, and a lower Brazil profit contribution after the contract expiry of 2 PLSV vessels in FY20 and 1 in FY22.

It added that its earnings revision also took into account its ower average Brent oil gas price forecasts of US$67 a barrel for FY20 and US$68 a barrel in FY21.

The research house maintained a hold call on Sapura Energy with a lower target price of 33 sen from 35 sen previously.