Sapura Energy may see margin pressure in FY20

KUALA LUMPUR: Sapura Energy Bhd is expected to remain in the red in financial year 2020 (FY20) despite narrowing losses due to poor engineering and construction (E&C) margins.

Affin Hwang Capital Research 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 September this year.

“Nevertheless, we remain positive on the exploration and production division as production levels will see a ramp-up in FY21 once the SK408 Gorek, Larak, Bakong field achieves first gas by year-end, it said in a report yesterday.

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

“Assuming all goes well, the drilling division will likely see a breakeven by 3Q20.”

The research house has changed 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 two PLSV vessels in FY20 and FY22.

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