Sapura Energy remained in the red for the 7th consecutive quarter, with its legacy issues central to its underperformance still. Until its proposed restructuring scheme takes off and offers clarity and direction, the group remains vulnerable to its negative mix of a stretched balance sheet, tight cash flows, legacy contracts, poor execution, and cost overruns.
It is of view that turning around Sapura Energy remains a challenge and a work in progress, stock house Maybank IB says it sees better value elsewhere for now.
The third quarter result was a weaker quarter on quarter, with headline net profit of MYR10m (vs. –MYR3m a quarter ago) in 3QFY1/23 comprised substantial EIs (+MYR139m), namely: (i) forex (+MYR151m, (ii) gain from disposal of PPE (+MYR9m) and (iii) inventory write-down (- MYR21m). Excluding that, the group reported a wider QoQ core net loss of MYR129m (-MYR77m in 2QFY23). The QoQ weakness was largely due to: (i) a 99% drop in its drilling ops and (ii) its E&C ops in the red (-MYR27m vs. +MYR59m in 2Q23). Sapura Energy was at LBITDA; a negative and remained in net current liability & negative operating CF for the 6 th and 3rd consecutive quarters. Net debt/ gearing levels remained high, at MYR9.5b/ 30x respectively.
While its operational/ financial restructuring exercises are underway, turning around (a PN17 status) remains a challenge, Mayabank IB thinks it will take a while still. Much of its ops are still exposed to legacy contracts. Sapura Energy still needs to re-base its costs structure to a much lower level while at the same time, ensuring that its, depleting MYR6.8 order backlog (on its 7th consecutive quarter decline now) and bids do not continue to suffer from further cost overruns/ provisions. The need to divest/ monetize its assets/ businesses is inevitable and an ongoing process.
If keen to invest in oil and gas, there are other counter, Maybank IB continues to prefer Hibiscus (HIBI MK; BUY; TP: MYR1.90), Yinson (YNS MK; BUY; TP: MYR4.05) & Dialog (DLG MK; BUY; TP: MYR4.90), to name a few.
