Sapura Energy in its latest financial statement remained in the red for the 6th consecutive quarter, which is continuously weighed down by legacy issues. According to Maybank Investment the group remains vulnerable to its negative mix of a stretched balance sheet, tight cash flows, legacy contracts, poor execution, and cost overruns. While an operational and financial restructuring exercise is underway, turning around remains a challenge and a work in progress.
The investment bank sees better value elsewhere for now. Salient points from its 2Q inludeds, reported a lower QoQ core net loss of MYR77m (-61%) in 2QFY1/23, which took its 1HFY23 core net loss to MYR272m (vs. –MYR448m in 1HFY22); 70% of the full year estimate. The drilling ops were the key driver in 2QFY23, with PBT of MYR43m (vs. -MYR49m in 1Q23), fuelled by higher utilization. This was followed by its E&C and O&M ops, which fared equally well, with higher PBT (+22%/ +69% QoQ) respectively. This was negated by the losses at its energy ops (-MYR92m vs. +MYR42m in 1QFY23) due to the write-off of an exploration well. Sapura Energy managed to achieve EBITDA break-even; a positive but remained in net current liability & negative operating CF for the 5th and 2 nd consecutive quarters.
Net debt/ gearing levels remained high, at MYR9.5b/ 53.3x respectively. Improving but not out of the woods still estimates are unchanged, expecting the group to be in the red in FY23 on lower losses in 2HFY23. While its operational/ financial restructuring exercises are underway, turning around froma PN17 status remains a challenge. It will take a while still. Much of its FY23 ops are still exposed to legacy contracts. Then oil and gas company still needs to re-base its costs structure to a much lower level while at the same time, ensuring that its MYR7.7b order backlog and MYR24.4b bids do not continue to suffer from further cost overruns/ provisions. The need to divest/ monetize its assets/ businesses (>MYR.300m) are inevitable and an ongoing process.
Risks override reward
Maybank Investmtnt continue to advocate preference elsewhere like Hibiscus (HIBI MK; BUY; TP: MYR1.90) and Yinson (YNS MK; BUY; TP: MYR4.05).
