Timely for Sapura Energy to raise capital, say analysts

KUALA LUMPUR: While Sapura Energy Bhd (SEB) posted a net loss of RM147 million for the first quarter ended April 30, 2018 (1QFY19), a number of research houses remain undiminished in their outlook for the company and stress that its immediate priority will be to raise capital for future growth in the medium to longer term.

Analysts were in agreement that SEB’s priority in FY19 would be to de-gear or lower its borrowings, which at a debt-to-equity ratio of 1.6 times was relatively high among its global peers.

SEB is involved in offshore development, drilling and pipe-laying services as well as engineering, procurement, construction, installation and commissioning services. The group also owns upstream assets with 243mmboe (millions of barrels of oil equivalent) of reserves and resources, of which 94 per cent is natural gas.

In rating a ‘buy’ for SEB, Maybank Investment Bank said a well-executed capital raising exercise would cut its net gearing level to a healthier level, to, say, 0.6 times in terms of debt-to-equity ratio.

“To be successful, these initiatives require high commitment from major shareholders and should be structured to be win-win,” it added.

With RM16.5 billion in borrowings and RM1.4 billion in cash as at end Q1 FY19, Credit Suisse said deleveraging or debt reduction would remain a key priority as it was important that the company remained well capitalised to capture the improving prospects in the industry.

UOB Kay Hian said although it was difficult to gauge if investors would perceive the capital raising needs positively, “we view that the timing of this new information is a strong signal that SEB is close to securing more mega contracts that will require capital support”.

As for the 1QFY19 results, Credit Suisse said SEB’s performance was dragged down by its drilling division but it did not think that the market would be displeased with the results as “FY19 is expected to be a ‘transition year’ after all”.

It felt that SEB would, at best, break even this year where its order book wins would be a more crucial parameter “to ensure the company survives in the medium term.”

Maintaining its rating of ‘outperform’ for SEB when looking at the big picture, Credit Suisse said that its thesis for the company remained intact where the key catalysts would be from more order wins, improved tender market and listing of the exploration and production (E&P) division.

SEB’s management, it said, expected profit in its E&P division to improve over time as its gas fields begin production and with higher margins to oil, adding that it remained crucial for SEB to secure sizeable orders in FY19. — Bernama