KUALA LUMPUR: Potential improvement in future profitability as well as better earnings growth from projects that in the pipeline showing positive signals for Sapura Energy Bhd.
Malaysian Association of Technical Analysts adviser Nazarry Rosli said Sapura shares is back in investors radar as the stock price has been surging for the past few weeks is expected to continue strengthening in the next few months.
"Research houses have been generally positive on Sapura with a fair value of 50 sen. Generally all oil and gas stocks, Sapura included, still have an upside potential due to the uptrend movement of world crude oil prices," he said when contacted.
The price uptrend is also attributed to positive prospects of Sapura's RM16 billion order book, the RM4 billion cash call with Permodalan Nasional Bhd (PNB) as well as its future earnings growth.
Public Investment Bank Bhd said Sapura shares have been steadily growing from late last year from 30 sen to now 35 sen.
"We expect it to hit the psychological 40 sen level in the next few weeks.
"Optimism is high in the stock and some research houses has set a target price of 50 sen for the stock in the next six months or so," said the analyst.
In its research note to investors, AmInvest Resesarch upgraded Sapura to buy from hold previously and target its share price to reach 50 sen from 30 sen before.
AmInvest noted that there is more confidence in Sapura's improving earnings prospects which currently stems overseas principally in the Middle East, Brazil, Gulf of Mexico and West Africa.
Sapura has also been selected as one of Saudi Aramco's four new long term agreement contractors late last year.
Hence substantive order book expansions are still likely augmenting Sapura's current tender book of US$8.5 billion with prospective bids of another US$14.3 billion.
AmInvest Research said Sapura's new orders grew to RM9.3 billion for 2019 compared to RM2.8 billion clinched in 2018 and an outstanding order book of RM17.7 billion - triple than its forecasted revenue in 2020.
In January the group secured three rig drilling charters and two offshore jobs worth RM760 million which include carrying out engineering, procurement, construction and commissioning works related to the relocating of Petronas floating LNG Satu from the Kanowit field to the Kababangan cluster off Sabah.
Investors also like the completion of a 50 per cent equity stake sale in Sapura Upstream to Austria's OMV Aktiengesellschaft for RM6.5 billion.
"We expect Sapura's net profit to surge by 2.2 times for financial year 2020 and 41 per cent for 2021 from substantive cuts in interest costs, partly offset by the upstream earnings deconsolidation.
Additionally, this will cut the group's 2020 net gearing 1.7 times to a comfortable 0.5 times," said AmInvest.