Possible listing of energy arm a boon for Sapura Energy
KUALA LUMPUR: MIDF Amanah Investment Bank Bhd (MIDF Research) is positive on Sapura Energy Bhd (Sapura Energy) reportedly mulling to list its energy segment, comprising the upstream oil and gas production business.
The reported rationale for considering this corporate spinoff is based on upbeat global crude oil prices which have increased by over 25 per cent from 2017’s average.
“We are positive on this news as the spinoff could allow Sapura Energy’s energy segment to gain higher valuation as an individual entity compared with when it was within the enlarged Sapura Energy group,” it said yesterday.
Drawing examples from local and global independent upstream oil and gas producers, MIDF Research saw that company valuations have increased by over 10 per cent since December 2017 when globalcrude oil prices staged a strong surged touching US$70 per barrel.
“At this juncture, we opine that the Energy Segment is the only stable segment in terms of earnings amongst all the business segments.” Its latest 9MFY18 segment revenue inched up by 5.7 per cent year on year (y-o-y) while cumulative segment profit before tax sustaining at above RM50 million/
MIDF Research said the commendable results are attributable to higher barrels of oil lifted and higher average selling prices achieved. Contributions from B15 gas field is expected to accrue in a more meaningful manner in FY19 only.
Immediate benefits upon energy segment spinoff include a possibly higher valuation from revaluing Sapura Energy’s upstream assets, expected output and expected higher hydrocarbon average selling prices.
“Other benefits include more efficient capital raising and allocation for future heavy oilfield capex and opex; and possible reduction in existing group debts from proceeds from spinoff.
The current outstanding orderbook for Sapura Energy is at approximately RM15.1 billion. Contract wins year-to-date totalled RM2.8 billion, while its tenderbook is currently at US$5 billion and prospects at US$4.5 billion.
To note, RM1.7 billion is expected to be recognised in FY18, RM4.3 billion in FY19 and the remaining portion from FY20 onwards.
“Over the past six months, global crude oil prices have staged a strong surge by over 41 per cent rising to a three and a half year high of US$70 per barrel,” MIDF Research said. “This has caused a slight revaluation in local oil and gas related shares.
“In addition, the rise in global crude oil prices has also stoked investors’ interests in local oil and gas shares, where trading volume for Sapura Energy surged for the past two months.
“Although we acknowledge that Sapura Energy’s profitability might still be weak due to its other underperforming segment, we believe that the share offers short term trading opportunities for investors.
“As such, we are upgrading Sapura Energy to trading buy with an unchanged target price of RM1.01 per share.”