Sapura Energy building presence in Middle East
KUCHING: Analysts are optimistic on Sapura Energy Bhd’s ( Sapura Energy) whollyowned subsidiary Sapura Fabrication Sdn Bhd bagging a contract from Total E&P Golfe Ltd to provide engineering, procurement, supply, construction, installation and pre-commissioning of pipelines connecting three platforms in Qatar’s Al-Khalij Field, Block 6.
It is its third major contract win in the Middle East.
The pipeline project is part of several contracts recently won by Sapura Energy’s Engineering and Construction (E&C) and Drilling divisions, with a combined value of approximately RM611 million.
“The new wins demonstrate Sapura Energy’s resilience in a challenging environment, progressing the company’s strategy of leveraging its agility and assets to expand international reach,” the company said in a filing with Bursa Malaysia.
Kenanga Investment Bank Bhd ( Kenanga Research) was positive on the contract awards, especially considering the current challenging environment plaguing the oil and gas sector.
“These contract marks the third win the group had secured in FY21, bringing year to date wins to RM2.2 billion and estimated order-book to roughly RM13 billion.
“More specifically, its E&C contract award in Qatar marks the group’s third major contract win in the Middle East, reflecting on the group’s efforts making inroads within the region,” it commented yesterday.
The E&C award from CarigaliPTTEPI Operating Company (CPOC) marks the group’s second contract win from the same project, as earlier in the year, Sapura Energy was also awarded the subsea pipeline in the same project.
“This could also potentially reflect the client’s satisfaction in Sapura Energy’s job delivery capabilities to be able to secure a second award from the same project,” Kenanga Research added. “Overall, we expect these jobs to fetch operating margins within the low-teens.”
Despite being positive on the contract win, Kenanga Research still remained cautious given the group’s balance sheet concerns, although the company is currently seeking a refinancing to lengthen its average debt maturity profile by the year end.
“It was also cautious on potential risk of impairments as ROAs have yet to recover to levels of yesteryears despite massive impairment exercises over the past few years.
“Meanwhile, given thecurrent industry climate, sustainability of its earnings and successful materialisation of its bid-book into order-book also remain uncertain,” it cited.
Similarly, Hong Leong Investment Bank Bhd ( HLIB Research) also said there were still ample risk with regards to the execution of these contracts due to the current O&G climate.
“Sapura has experienced a negative EBIT margin for both its E&C and drilling segments for the most part of FY20 and we believe that border restrictions as a result of the resurgence in Covid-19 cases would potentially cause logistical issues with regards to the delivery of its E&C projects.
“However, Sapura has recorded an improvement in its 2QFY21 results due to successful cost cutting measures bearing fruits and we opine that Sapura would have to show more consistent and promising results in order for us to warrant a re-rating on our call.
“We believe that Sapura’s net gearing risk remains high at this point in time and the Company needs to refinance its debt soon.”