Sapura Energy needs time to return to the blackPETALING JAYA: Sapura Energy Bhd may need more time to return to the black despite recent contract wins.
CIMB Equities Research, which is retaining its “hold” call for the oil and gas stock, said Sapura Energy announced several contracts on April 12, with more likely to follow as it is in the process of bidding for many more contracts.
“The key is how profitable the contracts will be, given that Sapura Energy has been under pressure to build its order book and may have bid competitively,” it said in its report yesterday.
The research house has an unchanged sum-of-parts based target price of 37 sen on the stock.
Sapura Energy had earlier disclosed that it had a
RM17.2bil order book as at Jan 31, 2019, so the new wins will raise the proforma Jan 31 order book to RM18.5bil, or RM18.6bil factoring in another drilling contract which had not yet been announced by the company but already reflected in Riglogix’s database.
“We had factored in RM4.7bil in E&C revenue for FY1/20F, against RM4.6bil in contracts won to-date.
“Our revenue target may be exceeded since we are still in the early part of the financial year, but we are more concerned about how profitable these contracts will be,” CIMB Research noted
Sapura Energy’s E&C arm delivered an estimated
EBITDA margin of only 1% in FY19, or 5.6% if excluding a RM170m in cost overruns from a domestic onshore project, which compares unfavourably to FY18’s EBITDA margin of c.10% and FY17’s c.13%.
For E&C contracts to be executed in FY20F, CIMB Research factored in an EBITDA margin of 5%, which it believes is reasonable, albeit tight.
“The risks to Sapura Energy’s E&C earnings remains high, given that the expected thin margins leave little room for error in execution.
“We have assumed Sapura Energy to deliver E&C revenue of RM5bil and an EBITDA margin of 10% for FY21F, assuming that global E&C asset utilisation rates improve following an expected increase in offshore capex,” it said.
According to the research firm, Sapura Energy is bidding for E&C work in Qatar’s North Field, India’s Heera field, Saudi Arabia’s Marjan and Zuluf fields, Mozambique’s Mamba field, pipeline installation work in Greece and India, among many others, as reported by Upstream.
New contracts for Sapura Energy’s tender drilling rigs (TDR) SAPE announced two new contracts for the T-9 tender barge and the Berani semi-tender worth US$100mil.
Another contract for the T-18 worth US$22mil was reported by Riglogix but yet to be announced by Sapura Energy.
“Based on contracts secured to date, the TDR fleet as a whole is poised to deliver 41% utilisation rate in FY20F, which should rise once more drilling work is secured, to our forecast of 46%.
“But we note that there are big differences between the shallow-water tender barge fleet which has secured contracts for 24% utilisation, versus the deep-water-capable semi-tender fleet with 61% utilisation for FY20 forecast.
“We expect this to persist, as tender barges compete with more flexible and more competitively priced jack-up rigs in South-East Asia.
“As such, for the forecast period, we lower our utilisation assumption for tender barges from 35% to 30%, and raise our utilisation assumption for semi-tenders from 60% to 65%,” CIMB Research pointed out.
Source: The Star
https://www.thestar.com.my/business/bus ... eg9i3Ye.99
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