KUALA LUMPUR (June 28): Analysts maintained their “sell” recommendation on Sapura Energy Bhd, as the financially-troubled group’s debt restructuring plan to turn around operations remains uncertain despite returning to profitability.
Sapura Energy opened at five sen on Tuesday (June 28th), up 11.11% or half a sen, on news that the firm Practice Note 17 (PN17) returned to profit for the first quarter ended June 30 April 2022 (1QFY23) from a net loss for the prior year.
The most active stock on the local exchange then jumped 22.22% or one sen to 5.5 sen at the time of writing. It rebounded 37.5% from a four-sen low last Thursday.
At 5.5 sen, Sapura Energy was valued at RM790.96 million, with some 80.89 million shares traded so far in the day, above the 200-day average of 56.89 million.
However, the counter has lost 44% in the past month and 61.54% in the past year.
Bloomberg data shows that analysts have four “sell” calls, an “underperforming”, a “reduced”, a “neutral” and a “buy” on the stock, with target prices (TP) ranging from one minimum of half a sen to a high of 12 sen.
Sapura Energy recorded a net profit of RM91.93 million for 1QFY23, compared to a net loss of RM97.07 million for 1QFY22, due to foreign exchange gains resulting from the appreciation of the US dollar against the ringgit. However, the company’s revenue decreased by 39.75% from RM1.47 billion to RM886.08 million, due to lower project activity in the engineering division. engineering and procurement (E&C).
For the previous quarter (4QFY22), the company recorded its largest ever net loss of RM6.78 billion.
Analysts covering the stock said Sapura Energy’s FY23 first-quarter earnings were in line with their expectations, but as the oil and gas service provider’s strategies to turn around its operations remain uncertain, they stand by their recommendation. of “sale” on the title.
Hong Leong Investment Bank (HLIB) Research maintained its “sell” recommendation with an unchanged TP of one sen, based on a price-to-book ratio of 0.5x FY22. “We believe Sapura Energy will need more time and effort to turn its operations into profitability, which we don’t expect anytime soon. We are concerned about its operating liquidity due to difficulties in obtaining financing and its ability to gain future employment due to its weak balance sheet,” the research house said in a note.
As of the end of April 2022, Sapura Energy’s order book stood at RM8.3 billion, with RM23 billion in open bids. HLIB expects the company’s current headwinds and uncertainties to continue into FY23.
The group’s net debt continued to deteriorate, which climbed to RM10.2 billion in 1QFY23 from RM9.9 billion at the end of FY22, he noted.
“We believe it will be a daunting task for Sapura Energy to turn around its operations in the short to medium term due to: increased cost overruns in its projects; liquidity problems due to difficulties in obtaining financing due to its distressed balance sheet as it is now officially a PN17 company; risks relating to the delivery and execution of works as Sapura Energy has not yet shown a satisfactory track record in recent years; and inability to gain jobs due to its difficult track record,” HLIB explained.
CGS-CIMB Research said the success of the company’s debt restructuring is critical to avoiding delisting. The search house retained its “reduced” rating of the title, with an unchanged TP of half a sen.
The company’s auditors have expressed significant uncertainty regarding its FY22 financial statements and as a result, it has been classified as a PN17 company under Bursa Malaysia rules.
Sapura Energy’s shareholders’ equity of RM157 million remained below the critical threshold of RM5.4 billion, or 50% of its paid-up share capital, at the end of April 2022.
“Even if the material uncertainty tag is lifted, Sapura Energy will still need to have at least RM40 million in equity, which is just a little lower than Sapura Energy’s current position of RM157 million per relative to the magnitude of its potential annual losses, therefore, the success of the group’s debt restructuring is essential to avoid delisting,” CGS-CIMB said.
Kenanga Research maintained its “underperforming” call with an unchanged TP of half a sen, pegged at 0.5x the group’s net assets at 1QFY23. “Following the results, we reduced our FY23/24 loss assumptions by 18%/22% after adjusting for better E&C contributions.”
“It continues its restructuring efforts to stay afloat, which includes renegotiating its old contracts and with lenders on its debts as well as implementing a divestment plan.
“On a more positive note, the group recently managed to draw a working capital loan of RM300 million, securitized from the proceeds of the sale of its Sapura 3000 asset, which is expected to be completed in July. alleviate its liquidity issues at least for the next two months,” Kenanga added.
Sapura Energy returns to black in Q1 with net profit of RM91.93m on foreign exchange gains