Two thumbs up for Sapura Energy’s slew of contracts
KUCHING: Analysts are happy with Sapura Energy Bhd’s (Sapura Energy) orderbook replenishment prosppects following several contracts and contract extensions worth approximately RM1.3 billion in drilling as well as engineering and construction (E&C) segments which brings its total contract wins for the current financial year to roughly RM18.5 billion.
To note, Sapura Energy’s drilling division has been awarded two contracts which will see the deployment of Sapura Berani semi tender rig for nine of Petronas Carigali’s wells at Sumandak, Erb West and Dulang facilities (targeted for completion by 4Q19) and Sapura T-9 rig to Exxonmobil E&P Malaysia for a three-year period commencing 3QFY20.
Separately, three E&C contracts were secured. The first is for the installation of six subsea pipelines (57km) at the Gulf of Suez for Gulf of Suez Petroleum Company for 10 months and will be completed by 2QFY20.
The second is the EPCI of two 16” offshore rigid pipelines, inline tee, and deep water pipeline end terminations expected to be completed by FY20, and the third is for the design and fabricate a remotely operated vehicle (ROV) for the Royal Australian Navy.
“We make no changes to our earnings forecast as all these fall under our construction order book plenishment and FY20 drilling utilization assumptions of 54 per cent,” said Affin Hwang Investment Bank Bhd (AffinHwang Capital). “Inclusive these batch of contracts, we estimate Sapura Energy’s order book to be about RM18.5 billion.”
Despite the crude oil price currently in an upward trend breaching the US$70 level, MIDF Amanah Investment Bank Bhd (MIDF Research) remained wary on Sapura Energy’s earnings prospect as it foresee that its profitability will remain weak in the near term.
The expected weak earnings prospect is mainly due to its drilling segment which is currently struggling to remain afloat and has yet to break-even as of 4QFY19.
“This is further exacerbated by the margin compression currently experienced by its E&C segment,” MIDF Research said. “Furthermore, with the recent sale of 50 per cent stake in Sapura Upstream, contribution from its Exploration & Production (E&P) segment has now been reduced significantly.
“That said, we remain positive on Sapura Energy’s increasing orderbook replenishments; interest savings from paring down its borrowings as well as; the expected pick-up in activity levels for both its E&C and drilling segments.
“We are expecting to see a rampup in its activity levels as early as 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.
“As such, we are reiterating our neutral call on Sapura Energy with an unchanged target price of RM0.34 per share.”