Research firms mixed on Sapura Energy

PETALING JAYA: MIDF Research has downgraded Sapura Energy Bhd to a “neutral” call after it swung into a net loss of RM274.41 million for the third quarter ended Oct 31, 2017.
Its target price has also been slashed from RM1.69 to RM1.01.
MIDF Research said in its report last Friday that at this junction, it is reasonable to assume that Sapura Energy will register a net loss for FY18. It reported a net loss of RM217.95 million for the nine-month period.
“Any upside to earnings will most likely happen in FY19 when the new projects secured will be executed in a more meaningful manner, contributions from higher oil prices for the energy segment and higher activity levels for the tender rigs. Therefore, we turn bearish on FY18, reducing our earnings forecasts to a loss of RM235.2 million while reducing our FY19 earnings estimates to RM105.1 million.”
The net loss in the third quarter was mainly stemmed from the 47.5% steep decline in engineering and construction revenue.
MIDF Research said while the broader industry climate is improving with crude oil prices sustaining at levels above US$60 per barrel, Sapura Energy’s dismal earnings will continue to weigh heavily on its share price.
“In addition, its heavy asset base and large interest payments on debts will also further exacerbate the downward pressure on its stock price.”
The stock continued to fall last Friday, ending the day 13.5 sen or 14% lower at 83 sen with some 293.87 million shares done.
MIDF Research noted that Sapura Energy’s cash level has declined from RM3.52 billion as at end-January 2017 to only RM1.89 billion currently due to heavy capex and debt-servicing obligations. This has caused its net gearing ratio to register 1.26 times, exceeding the company’s medium term target of 1.1 times.
Nonetheless, PublicInvest Research said it continues to like Sapura Energy’s long-term prospects, supported by its ability to offer integrated services.
The research house reiterates its “outperform” call with a lower target price of RM1.69 from RM1.95 previously.
It believes that the group is a strong operational and reputable player, enhanced by its contract wins to-date and its operations remaining on track.
“In this challenging period, the group has put itself on a stronger financial footing which includes right-sizing the organisation for better efficiencies, which we believe would continue to help weather them through these current conditions.”
Nevertheless, PublicInvest Research has lowered its FY18 forecasts again to a loss of RM53.6 million, while FY19 and FY20 numbers are reduced by 44.5% and 31.4% respectively, as the Q3 results missed the research house’s and consensus full-year earnings estimates.