Worst not over for Sapura Energy

PETALING JAYA: Sapura Energy Bhd may not be able to turn around its operations in the near-to-medium term after reporting financial results which once again came in below market expectations.

Hong Leong Investment Bank (HLIB) Research said in a report to clients that heightened cost overruns in its projects, liquidity issues from difficulties to obtain funding and the oil and gas company’s inability to win jobs due to its balance sheet distress would likely prevent it from doing so.

The investment bank’s research arm said it was downgrading Sapura Energy to a "sell" from a previous "hold" and lowering its target price for its stock to one sen from the previous five sen.

At last look, the stock was at four sen apiece.

"As at end-Jan 2022, Sapura’s order book stood at RM6.6bil with RM28bil of bids in progress.

"We expect current hurdles and uncertainties to continue in financial year 2023 (FY23).

The group’s net gearing level continued to deteriorate, ballooning to 39 times as at end-January 2022 from 1.1 times as at end-January 2021 due to lumpy impairments in its intangible assets," HLIB said.

It is now projecting a wider FY23-FY24 net loss of RM717mil and RM706mil respectively (from RM621mil and RM580mil previously) to account for lower margins for its engineering and construction business division.

"We also forecast Sapura to eventually dip into negative book value due to the continuity of expected losses in FY23-FY24," it said, adding that it believed the worst was not over yet for the group.

It said it believed that Sapura would need more time and effort to turn around its operations into profitability, "which we do not foresee happening anytime soon".

"We are concerned over its operational liquidity from difficulties to obtain funding and its ability to win future jobs due to its balance sheet distress."

PublicInvestment Research also said liquidity concerns remained for Sapura Energy, further hampering its turnaround efforts while limiting its growth prospects.

"This also has affected certain project executions due to the lack of support from suppliers given the amount still owed."

PublicInvestment Research also lowered its call on Sapura Energy to a "trading sell" with a target price of three sen, from five sen previously.

Sapura Energy said last Friday that its net loss in the fourth quarter ended Jan 31, 2022 had widened to RM6.61bil compared to a loss of RM216.03mil a year ago, due mostly to impairment on goodwill and impairment on property, plant and equipment.

Its quarterly revenue also saw a significant fall, dropping by 68.61% to RM453.14mil from RM1.44bil in the previous year.

For the entire FY22, the group saw a net loss of RM8.9bil – also its highest ever loss – compared to a net loss of RM160.87mil a year earlier, mostly because of impairments.