Analysts revise Sapura’s forecasts following new job award
KUCHING: Analysts have revised upwards Sapura Energy Bhd’s (Sapura) financial year 2019- 2021 earnings forecast following the group’s new job award to build Oil and Natural Gas Corporation Ltd’s (ONGC) Offshore Process Platform.
According to AmInvestment Bank Bhd ( AmInvestment Bank), given that Sapura has secured a US$ 353 million ( RM1.5 billion) contract to build ONGC’s Of fshore Process Plat form (central processing platform and living quarters) project for the KG-DWN- 98/2 NELP block as indicated in the research firm’s past reports, the group’s new FY19F contract wins have surged by 21 per cent to RM8.5 billion to date.
AmInvestment Bank Bhd said that this is well ahead of its order book intake assumption of RM6 billion.
Meanwhile, the research arm of Kenanga Investment Bank Bhd ( Kenanga Research) was positive on the contract win, as it further reiterated Sapura’s healthy contracts flow and commendable jobs execution record.
Additionally, the job win brought year to date ( YTD) wins to exceed Kenanga Research’s replenishment assumption of RM8 billion.
“We expect profit before tax ( PBT) margins for the contract to be at around mid- single digit percentage,” the research arm said.
“Post- contract award, we revised our FY19-20E earnings upwards by two-nine per cent as we raised our replenishment assumption to RM9 billion.”
With more contracts yet to be announced soon, AmInvestment Bank has raised its FY19F-FY21F new order book assumptions by 25 per cent- 50 per cent to RM9 bil lion- RM10 bil lion, which raised FY20F-FY21F earnings by 16 per cent- 42 per cent in view of the engineering, procurement, construction and installation ( EPCI) profit recognition cycle.
“The new jobs increase Sapura’s outstanding order book by 10 per cent quarter on quarter (q- o- q) to RM16.9 billion – 2.8-fold revised FY20F revenues.
As the group was recently selected as one of Saudi Aramco’s four new long-term agreement programme contractors for a six-year firm period (excluding two opt ional extensions of three years), the research firm expected substantive expansions from the group’s current tender book of US$ 8.5 bil lion and prospective bids of US$ 14.3 billion.
AmInvestment Bank also noted that earnings prospects for the engineering and construction ( E& C) segment is improving amid better vessel utilisation whi le the fabricat ion yard utilisation, currently at 10 per cent in the third quarter of FY19 (3QFY19), is expected to reach 40 per cent in 4QFY19 and touch 80 per cent towards the second half of FY20F (2HFY20F).
“While the drilling segment’s losses have ameliorated, market conditions still need to significantly improve as Sapura needs to charter out 10 of 16 rigs to achieve breakeven versus seven in 3QFY19 and six in 2QFY19.”