KUALA LUMPUR: Despite the recent pickup in crude oil prices, Sapura Energy Bhd’s third quarter (Q3) results ended October 31, 2017 continue to reflect a tough operating environment for the oil and gas industry.
Public Invest Research noted the lower contributions from both Sapura Energy’s drilling and exploration & production (E&P) divisions continued to affect the company’s financial performance.
Sapura Energy posted a net loss of RM274.41 million in Q317 from a net profit of RM158.06 million, previously due to lower revenue from its engineering and construction and drilling business segments.
Revenue in Q3 plunged 42.34 per cent to RM1.28 billion from RM2.22 billion recorded in the same period a year ago.
The research house has lowered Sapura Energy’s financial year ending January 31, 2018 (FY18) forecast to a loss of RM53.6 million, citing that the company has not meet its consensus full-year earnings estimates.
It said Sapura Energy’s FY19 and FY20 earnings forecast are reduced by 44.5 per cent and 31.4 per cent, respectively, on the risks of potential impairments in the coming quarter due to certain idling assets.
Public Invest Research has maintained Sapura Energy ‘Outperform’ recommendation with a target price of RM1.69 from RM1.95 previously, based on its blended sum of parts (SOP) valuation earnings multiples in light of the current operating environment.
“We continue to like its long-term prospects supported by its ability to offer integrated services. We believe Sapura Energy is a strong operational and reputable player, enhanced by its contract wins to-date and its operations remaining on track,” it said.
The research house believes Sapura Energy get through the current conditions, citing that the company has put itself on a stronger financial footing which includes right-sizing the organisation for better efficiencies.
MIDF Research has downgraded its Sapura Energy call on ‘Neutral’ due to investor sentiments turning unfavourable, with a revised target price of RM1.01 based.
On another note, it said the broader industry climate has improved with crude oil prices sustaining at levels above US$60 per barrel.
“We opine that Sapura Energy’s dismal earnings will continue to weigh heavily on its share price.”
The research house noted Sapura Energy’s heavy asset base and large interest payments on debts would also further exacerbate the downward pressure on its stock price.