Sapura Energy falls back into the red, analysts see bleak year ahead
KUCHING: Sapura Energy Bhd’s (Sapura Energy) third quarter of of the financial year 2018 (3QFY18) earnings slipped back into the red after two quarters of profit, and with that, analysts generally pegged a bleak outlook for the group next year.
According to the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research), Sapura Energy’s 3QFY18 earnings slipped into the red at – RM274.4 million, after two quarters of profit.
The decline in earnings were mainly attributed to the steep decline in engineering and construction ( E& C) revenue of 47.5 per cent during the quarter. Excluding the loss on disposal of SapuraAcergy and net forex loss, the company’s 3QFY18 normalised earnings is at approximately – RM206.1 million.
The research team noted that its cumulative first nine months of FY18 ( 9MFY18) normalised losses (excluding loss on disposal of SapuraAcergy, net forex gain and other asset disposal gains) is at RM223.3 million.
“The losses come as a surprise as we have previously assumed the E& C segment to remain profitable,” it remarked.
It added that the steep 47.5 per cent y- o-y revenue decline in E& C segment to RM822.3 million were due to lower activities during the quarter coupled with share of loss on disposal from SapuraAcergy amounting to RM46.1 million.
It noted that the current yard utilisation rate is low at only 15 per cent and is only expected to pick up by 2QFY19.
“Moving forward, approximately RM1.5 billion and RM3.5 billion worth of works from the E& C segment will be recognise for FY18 and FY19 respectively,” the research team said.
It also pointed out that the company’s drilling segment is not faring well either as revenue declined by 45.4 per cent y- o-y while losses before tax continue to widen as the fleet utilisation rate remains low and under tremendous strain.
“Five rigs were operational during the quarter, representing a fleet utilisation rate of only 33 per cent. Future demand for tender rigs regionally remains soft, albeit better compared with that of previous years.
“Moving forward, the fleet utilisation rate is expected to inch up to approximately 50 per cent, representing seven or eight working vessels. This, we expect, will happen in the latter part of FY19,” it added.
The only stable business segment for the group is the energy segment where revenue inched up by 5.7 per cent y- o-y while 9MFY18 segment profit before tax sustaining at above RM50 million, MIDF Research highlighted.
“The commendable results are attributable to higher barrels of oil lifted and higher average selling prices achieved. For 3QFY18, 0.9mmboe were lifted with an average lifting price of US$ 58pb (EBITSEPANG: DA breakeven ranging between USD30- 35pb). Contributions from B15 gas field is expected to accrue in a more meaningful manner in FY19 only,” it explained.
Meanwhile, the research arm of AmInvestment Bank Bhd (AmInvestment) said that the group’s two core operations – E& C and drilling – suffered losses while even the exploration and production (E& P) division, which should have fared better in a higher crude oil price environment, registered a sharp drop in earnings.
It pointed out that this was further exacerbated by a much higher 3QFY18 tax charge of RM66 million due to the group profitable entities and upstream production levies compared with only RM4 million in 2QFY18.
“Even though the E& P division’s revenue rose 28 per cent q-o-q from the US$ 8 per barrel increase in average crude price to US$ 58 per barrel and a 12 per cent increase in production to 0.9mil barrels, the segment’s pretax profit plunged 61 per cent q- o- q to RM9mil from the absence of one-off cost write-backs in 2QFY18.
“The commencement of 100 million cu ft/day gas production from the group’s 30 per cent-owned SK310 B15 development is expected in November this year.
“However, with oil price above breakeven at US$ 58 per barrel currently and the field life of only 5½ years, we estimate that the high depreciation charge on the US$ 300 million capex is likely to translate to a marginal contribution to Sapura Energy from 4QFY18 onwards,” AmInvestment projected.
All in, the research team said the group’s order book was flat q- o- q at RM15.1 billion while the pace of awards remains tepid although the group is hopeful of further wins with higher tender prospects of US$ 9.5 billion (compared US$ 8.2 billion in 2QFY18).
MIDF Research believed that at this juncture, it is reasonable to assume that the group register a net loss for FY18.
“Any upside to earnings will most likely happen in FY19 when the new projects secured will be executed in a more meaningful manner, contributions from higher oil prices for theenergy segment and higher activity levels for the tender rigs.
“Therefore, we turn bearish on FY18, reducing our earnings forecasts to a loss of RM235.2 million while reducing our FY19 earnings estimates to RM105.1 million,” it said.
Overall, MIDF Research said, while the broader industry climate is improving with crude oil prices sustaining at levels above US$ 60 per barrel, it believed that Sapura Energy’s dismal earnings would continue to weigh heavily on its share price.
“In addition, its heavy asset base and large interest payments on debts will also further exacerbate the downward pressure on its stock price,” it added.
The stock closed 13.99 per cent lower on Friday last week at RM0.83 compared with its opening price at RM0.97, with 293.874 million shares traded.