SAPURA ENERGY BHD

By MIDF Research Neutral (maintained) Target price: RM1.69

MIDF Research is revising its financial years 2018 (FY18) and FY19 earnings forecast downwards for Sapura Energy Bhd on anticipated persisting headwinds from its drilling and exploration and production (E&P) segments.

The research house revised its forecast downwards to RM98.7mil and RM152.5mil for FY18 and FY19.

Sapura Energy saw its second quarter (2Q18) earnings decline by 74.2% year-onyear to RM28.9mil, although group revenue only recorded a marginal decline of 1.1% to RM1.66bil.

The research house said the group’s cumulative earnings for the first six months of FY18 lagged its and consensus earnings estimates by a variance of over 50%, with the bulk of the declines in revenue and earnings stemming from the drilling and E&P segments.

“At this point in the financial year, we acknowledge that the company will continue to face headwinds from the drilling and the E&P segments,” it said in a note.

The group’s drilling segment revenue and earnings slumped by 42.8% and 131.8% yearon-year as rig utilisation remained low in a challenging operating environment.

There were six rigs out of 16 rigs in operation in 2Q18, representing a utilisation rate of 37.5%.

As for the E&P segment, revenue and profit recorded a decline of 45.2% and 13.0% yearon-year.

The decrease was, however, offset by higher average realised oil prices.

The research house maintained its neutral stance on the group.

“With company fundamentals remaining intact and stock price behaving erratically guided by global crude oil prices, we posit there could be trading opportunities for the stock and investors could benefit from the volatile price movements,” it said.