Sapura Energy a "buy" despite results, analysts say

PETALING JAYA: Analysts believe the worst is over for Sapura Energy after the oil and gas player fell into the red for the full financial year for the financial year ended January 31, 2018.
Today, Sapura Energy's wholly-owned subsidiary Sapura Exploration & Production Sdn Bhd (Sapura E&P), together with its joint venture partners DEA Deutsche Erdoel Mexico and Premier Oil have been awarded Block 30 in Sureste Basin, a proven and prolific hydrocarbon province in the Gulf of Mexico.
Sapura E&P entered into the bidding agreement with DEA and Premier based on an equity split of DEA 40%, Sapura Energy 30% and Premier 30%.
For the financial year ended Jan 31 (FY18), the group suffered a net loss of RM2.5 billion compared with a net profit of RM208.32 million a year ago, in line with lower revenue, which fell 22.95% to RM5.89 billion from RM7.65 billion a year ago.
Public Investment Bank Research(PublicInvest) maintained a buy call on the stock at an unchanged target price of RM1.11 citing the gradual recovery of crude oil prices should help the company improve its bidding and contracting activities.
The research house added that the management is focusing on replenishing its orderbook and is bidding for more contracts worth more than US$13 billion, which is a significant jump from its FY17 tenderbook value of US$2.5 billion. Its current orderbook value stood at RM16.6 billion, which is also the first rise seen over the last five years.
It also left earnings forecast unchanged as it believes that the worst is over for the company.
“Despite the poor results, we think the share price has been severely punished and fully reflected as it is currently trading at 68% discount to its book value. On a positive side, management guided that they are not considering anymore impairment in FY19 and it is also looking to monetize its exploration and production(E&P) assets to bring in additional cash for the Group.
On top of that, with the proposed listing of its E&P asset, the management does not see the possibility of having any cash calls, going forward.
AmInvestment Bank Research said the blocks secured in the Gulf of Mexico and the farm-in agreements which includes five offshore exploration permits in the Taranaki Basin, in New Zealand coupled with the proposed listing of Sapura’s E&P operations will reignite its re-rating process given an unjustified current price to book value of 0.3x vs. 0.9x for Bumi Armada.
Noting that, the financial results were within its expectations, the research house said that it has cut FY19F losses by 70% and reversed FY18F losses to a net profit on the back of a 12%-13% reduction in asset depreciation assumptions due to the substantive asset impairments, a projection of a US$5/barrel increase in crude oil prices for FY19F-FY20F and 5% increase in production for FY19F and flat for FY20F with the commencement of SK310 B15 field in Sarawak late last year.
“We also introduce FY21F earnings surge of 2.9x, driven by higher asset utilisation rate assumptions for both engineering & construction (E&C) and drilling while the production levels of the E&P division will more than double from the commencement of the Larak and Bakong fields in SK408 (in Sarawak),” it said.
The research house maintained a buy call at an unchanged target price of RM1.00 on the stock. Its share price closed up half a sen to 50.5 sen, with some 137.6 million shares changing hands, making it the most actively traded stock today.