Analysts positive on Sapura Energy’s increasing orderbook replenishments

KUALA LUMPUR: Analysts are remaining positive on Sapura Energy Bhd’s (Sapura Energy) increasing orderbook replenishments, while others project that the group’s financial year 2020 (FY20) core earnings should return to the black.

The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) noted that the industry climate in general has been improving with crude oil price gradually improving to levels above US$65 per barrel after recently plunging to below US$50 per barrel.

MIDF Research opined that this will continue to drive activity levels up especially for companies that have direct exposure to the upstream segments such as Sapura Energy.

“Management guided that even with the oil price at the current level; it is well above Sapura Energy’s break-even level,” the research arm said.

“Although we acknowledge that Sapura Energy’s profitability might still be weak in the near term due to its underperforming drilling segment, however, we remain positive on Sapura Energy’s increasing orderbook replenishments; potential interest savings from paring down its borrowings as well as; the expected pick-up in activity levels for both its engineering and construction (E&C) and drilling segments.”

Furthermore, MIDF Research expected to see a ramp-up in its activity levels as early as the first quarter of current year 2019 (1QCY19) as EPCIC contract works begin and yard utilisation will increase to 40 per cent in 4QFY19, with more meaningful revenue recognition expected from 2QFY20 onwards.

“Yard utilisation is also expected to gradually increase to 80 per cent with more works undertaken in the next six months.”

That said, the research arm noted that operating environment will remain challenging for Sapura Energy due to the persistent combination between the mismatch of revenue recognition with operating expenses as well as; asset utilisations.