SapuraKencana’s FY16 result misses mark for analysts
KUCHING: SapuraKencana Petroleum Bhd’s (SapuraKencana) financial year 2016 (FY16) results has significantly missed analysts’ expectations dragged down by the core net loss of RM135.9 million recorded by the group in the fourth quarter of FY16 (4QFY16).
In a filing on Bursa Malaysia, SapuraKencana noted that the group recorded loss before taxation of RM712.6 million in the current year as compared to RM1,616 million profit before taxation in the corresponding year.
According to the research arm of Kenanga Investment Bank Bhd ( Kenanga Research), SapuraKencana’s unexpected core net loss of RM135.9 million in the fourth quarter of 2016 (4Q16) brought the group’s FY16 core profit to RM714.5 million.
This was below Kenanga Research’s/street’s expectations by 30 per cent/29 per cent.
The variance from the research arm’s forecast was largely due to weaker-than- expected margins especially in E& C segments and lower-than- expected crude oil prices.
The research arm’s core net profit excluded RM320.7 million forex gain, impairment provision of PPE and oil and gas (O& G) properties worth RM2 billion and deferred tax liabilities post impairment amounting to RM294.5 million.
Meanwhile, SapuraKencana’s FY16 core net profit of RM714.8m came in below expectations at 59 per cent/66 per cent of Affin Hwang Investment Bank Bhd’s (Affin Hwang)/consensus full year estimates.
“Profits from all three key segments – E& C, Drilling, Energy – came in below our forecasts, with Drilling and Energy segments accounting for the major part of the earnings disappointment,” the research fi rm said.
RHB Research Institute Sdn Bhd ( RHB Research) noted that E& C and drilling segments continued to drive earnings for SapuraKencana.
The research house expects these segments to contribute 74 per cent of FY17 (January) operating profit, armed with an orderbook of RM18 billion and term contracts.
On the early start for Brazil, RHB Research pointed out that Sapura Onix was delivered two months ahead of schedule while Sapura Jade was delivered in Feb 2016, bringing the total number of operational vessels to four.
It underlined that two more vessels are expected to be delivered in the second half of 2016 (2H16).
Meanwhile, the research house noted that it did not come as a surprise that the energy segment’s impairments came up to RM1.3 billion. “For FY17, low oil prices and low production numbers from the energy segment should lead to marginal earnings for the segment,” it said.
On the other hand, Kenanga Research believed margin erosion is a concern in all three segments ( E& C, drilling and energy) in the near-term even with oil prices recovering to US$ 50 per barrel ( bbl) as most oil majors are still in aggressive cost optimisation mode.
As such, Kenanga Research cut its earnings forecast by 24.5 per cent for FY17 to RM769.9 million after factoring lower crude oil price assumption to US$ 38 per bbl from US$ 47 per bbl, lower earnings before interest and tax ( EBIT) margin for drilling and E& C segment and ringgit/US dollar assumption to RM4.10 from RM4.20.
The research arm highlighted that FY18E earnings of RM832.8 million is introduced assuming RM2 billion orderbook replenishment for E& C, average crude oil price of US$ 47 per bbl and average utilisation of 51 per cent for drilling segment.
As for Affin Hwang, the research fi rm slashed its FY17/18E net profit by 39 per cent/32 per cent, after cutting its EBIT forecasts for E& C segment by circa nine per cent, drilling segment by 52- 57 per cent and energy segment by circa 34 per cent.
In doing so, the research firm had reduced operating margin assumption for SapuraKencana’s E& C segment to 18.1 per cent (from 19.8 per cent), drilling rigs utilisation rate by 17-19 percentage points ( ppts) and cut its crude price assumption to US$ 35/40 per bbl in FY17-18E (in line with the revised US Energy Information Administration ( EIA) Brent crude price forecasts).
In contrast, RHB Research upgraded FY17F-18F earnings by five per cent given an early start of SapuraKencana’s Brazil operations.
“Lower orderbook replenishment and unexpected contract cancellations remain the key risks,” it said.
RHB Research noted that E& C and drilling would continue to be the main growth drivers for SapuraKencana in FY17 and contribution from the group’s energy segment should remain marginal.
All in, RHB Research maintained ‘ buy’ with a lower target price of RM2.42 per share from RM2.51 per share previously, as the research house adjusted its RM/US$ assumption to 4.12 from 4.24.
Pursuant to Affin Hwang’s earnings cut, the research firm reduced its 12-month target price for SapuraKencana to RM1.88 per share from RM2.05 per share previously, which was based on sum of the parts (SOTP) valuation.