Mixed views on Sapura Energy’s future earnings


AllianceDBS Research expects the company to be in the red from financial year 2021 (FY21) to FY22 with losses from its drilling and energy divisions offsetting improvements from its engineering and construction (E&C) division

PETALING JAYA: Sapura Energy Bhd (SEB) turned in two consecutive quarters of profit but analysts have mixed views as most are cautious on whether the momentum can be maintained given the industry’s challenges.

AllianceDBS Research expects the company to be in the red from financial year 2021 (FY21) to FY22 with losses from its drilling and energy divisions offsetting improvements from its engineering and construction (E&C) division.

However, MIDF said it was revising upwards its FY21 earnings forecasts to RM72.5mil. Some brokers have a mixed view on the stock with target prices ranging from 5 sen to 16 sen a share.

PublicInvestment Research said while the current set of numbers appear positive, with SEB not as badly hit by lower oil prices and movement restrictions due to Covid-19.

But it anticipates this performance may not be sustainable in view of the expected operating environment post-pandemic.

“With oil prices still relatively low, the worst may not be over yet for SEB, ” PublicInvest said.

AmInvestment said SEB indicated that cost reversals are part of exploration and production (E&P) business.

But AmInvestment does not view such items as recurring given that all oil and gas operators are currently in a cost-reduction programme against the backdrop of a low crude oil price outlook.

CGS-CIMB said that in light of the provision writebacks during the first half of FY21, it raised its E&C earnings before interest, taxes, depreciation and amortisation (EBITDA) margin forecasts for FY21 to 18% from 5% previously, and to 12% for FY22-FY23 (from 2% previously).

“We doubt that the FY21 EBITDA margin of 18% will be sustainable at that level into FY22-FY23 in the absence of writebacks and in light of the continuing tough and competitive bidding environment due to the low oil prices that has led to oil majors’ capex cuts, although some cost optimisation gains may be sustainable, ’’ CGS-CIMB said.

It added that SEB’s tender rigs continue to see low utilisation rates, which it estimates at just 35% in FY21 and 45% in FY22, including all options.

SEB has an order book of RM13.3bil, factoring another RM0.8bil in recent new wins. SEB reported its second consecutive quarterly net profit for the FY21 of RM23.7mil in 2Q21. That brings the 1H21 cumulative earnings to RM37.9mil.

MIDF said it was maintaining its FY22 earnings at this juncture as it believes all positives have been priced in for FY22. It said SEB will be able to sustain its current quarterly profit into the second half of FY21.

This is based on ongoing cost optimisation initiatives, stable movement of the crude oil price which would sustain current and encourage future work orders and margin expansion from its E&C segment.

It also expects better performance from its E&P segment in view of the recent recovery in oil price.

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