SAPURA ENERGY BHD
Target price: 40 sen
SAPURA Energy’s recent announcement of a potential listing of its exploration and production (E&P) business is positive in the long run, said AffinHwang, as it would allow the group to unlock value and not be dragged down by the two existing business segments.
However, this deal also works as a double-edged sword, said the research house, as it believes that if the E&P business is “carved out” completely, then Sapura Energy would lose its appeal for many existing investors who believe in the monetisation potential of its gas fields.
“Although still at an early stage, any move towards carving out the E&P division entirely for a separate listing, may therefore not be value-accretive to the currently listed Sapura Energy,” it said.
The market’s biggest concern is regarding the outlook of its engineering and construction and drilling divisions, according to the research house.
“Earnings have been on a declining trend with the drilling division falling into losses due to low rig utilisation. While oil price has been trending upwards, oil majors’ capital expenditure remains lacklustre.
“As such, we believe that order book replenishment risks will continue to be investors’ main concern.”
AffinHwang highlighted that Sapura Energy had completed a few acquisitions in recent years, which saw its non-current assets expanding.
Sapura Energy purchased Seadrill tender and semi tender rigs business for US$2.6bil (RM10bil) in April 2013, resulting in the book value increasing from RM2bil in 2012 to RM10.6bil in 2017.
It subsequently acquired Newfield’s oil and gas (O&G) blocks in Malaysia and now has a RM4.4bil expenditure on O&G properties on the book.
“Sapura Energy is currently sitting on RM8.5bil of goodwill post completion of the Sapura Crest and Kencana Petroleum merger and acquisition of Seadrill,” it said.
The research house has cut its 2019 earnings per share forecast by 25%, but raised its 2020 earnings outlook by 18% as it pencilled in a stronger ringgit and Brent oil assumption.