Sapura Energy remained in the red for the 8th consecutive quarter, with its legacy issues central to its underperformance still. Maybank Investment says it reiterates that until its proposed restructuring scheme takes off and offers clarity and direction, the group remains vulnerable for its negative mix of stretched balance sheet, tight cash flows, legacy contracts, poor execution and cost overruns.
Turning SAPE around remains a challenge and a work in progress. The house sees better value elsewhere for now. Headline net loss of MYR3.3b (vs. +MYR10m a quarter ago) in 4QFY1/23 comprised substantial EIs (-MYR3.2b), namely impairment on goodwill on consolidation, its drilling ops, its associate; SapuraOMV and forex losses. Excluding that, Sapura reported a wider QoQ core net loss of MYR145m. The QoQ weakness was largely due to higher finance costs and a lower share of profit from its associate (Brazil JV, Sapura OMV). It remained in net current liability for the 7th consecutive quarter. Net debt level remained high, at MYR8.9b and it has negative shareholders’ funds of MYR3b as at Jan 2023.
Still a major challenge ahead
Maybank is keeping its estimates unchanged, expecting Sapura to be in the red in FY24-26. While its operational/ financial restructuring exercises are underway, turning around Sapura (a PN17 status) remains a challenge and will take a while still. The group needs to register MYR1.2b EBITDA p.a. to break-even, re-base its costs structure to a much lower level while at the same time, ensure that its: (i) depleting MYR5.6 order backlog (on its 8th consecutive quarters decline now) and (ii) 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.
Continue to see better values elsewhere, for now
For exposure to the O&G space, the house said it will continue to advocate preference for Hibiscus (HIBI MK; BUY; TP: MYR1.90), Yinson (YNS MK; BUY; TP: MYR5.05) & Dialog (DLG MK; BUY; TP: MYR4.90).
