UOBKH Research said the delayed Practice Note 17 (PN17) regularisation plan and ongoing project slippage risks (for oil and natural gas corporation platform) will weigh on share price sentiment.
PETALING JAYA: Sapura Energy Bhd
’s recent contract wins of RM1.4bil will help bring stronger profits in the second half of its financial year 2024 (2H24) on the back of more lucrative engineering and construction (E&C) works and new rig contracts.
UOB Kay Hian (UOBKH) Research noted that most of the new contracts were for the E&C segment, and out of this, 58% are related to transportation and installation (T&I) for the Western Hemisphere.
“About 90% of its bid book is directed towards overseas projects. The higher mix of T&I E&C projects is aligned with the group’s target to be more focused on Atlantic markets and decommissioning opportunities,” the research firm said in a report.
The oil and gas (Q&G) services provider is also making progress on its reset plan.
However, UOBKH Research said its delayed Practice Note 17 (PN17) regularisation plan and ongoing project slippage risks (for oil and natural gas corporation platform) will weigh on existing share price sentiment.
According to the research firm, Sapura Energy had validated RM1.5bil in claims from 2,000 vendors through its proof of debt exercise, and the adjudication process is almost complete, with only eight more claims outstanding.
The group will also strive to rescope certain ongoing E&C contracts, although this may appear to be challenging for several projects, said UOBKH Research.
Financial-wise, it continues to see improved performance with net profit up 58% to RM146.09mil for the first financial quarter ended April 30, 2023 (1Q24).
UOBKH Research said the results were in line with consensus forecasts and expects profit generation to be stronger in 2H24, largely from higher rig utilisation.
It maintains a “hold” call on the stock, but trimmed the target price to RM0.04, “which assumes a delayed sustainable recovery from PN17”.
“We observed that Sapura Energy appears to be boosting its involvement in training human capital (not only for its own global projects, but may be for the overall O&G industry), and the logistics/supply chain management business, but we are unsure if they will be new revenue streams.
“All in all, risk-reward is balanced, as it factors both the group’s financial condition and its existing project execution.”
