KUALA LUMPUR: Sapura Energy Bhd is expected to continuously review or defer its engineering and construction (E&C) projects to next year, given the prevailing high cost of material prices, Public Investment Bank Bhd (PublicInvest) Research said.
The firm said that, despite the turnaround that the company recorded in the third quarter (Q3) ended October 31, 2022, Sapura's E&C segment registered a pre-tax loss of RM27.1 million compared to RM58.5 million pre-tax profit in the previous quarter.
"While revenue improved 17 per cent quarter-on-quarter (QoQ), we expect to see profitability affected by lower recognition from commercial settlements from underperforming contracts in its E&C segment and materialisation of additional claims in operations and maintenance (O&M) segment.
"Outstanding orderbook for E&C and O&M stands at RM4 billion, though profitability remains a concern given the execution of legacy contracts amid the current operating climate.
"We gather that the exposure of legacy contracts will reduce to 25 per cent in Q4 FY23," it said in a note today.
Meanwhile, PublicInvest said liquidity concerns are also hampering Sapura's turnaround efforts while affecting certain
project execution and ability to replenish its orderbook due to limited access to bank guarantees and working capital facilities during the restructuring phase.
"To keep its ecosystem running, management is looking to expedite the commercial settlement of contract claims with clients and review underperforming contracts.
Asset monetisation is ongoing, with the recently-completed disposal of three drilling rigs to NKD Maritime Ltd being the latest," it added.
PublicInvest has retained its 'Neutral' call on Sapura, with an unchanged target price of five sen.