KUALA LUMPUR (Sept 21): Analysts covering Sapura Energy Bhd have raised their target prices (TP) for the oil and gas (O&G) group after it posted a second consecutive quarterly net profit for the financial quarter ended July 31, 2020 (2QFY21).

Sapura posted a net profit of RM23.7 million for 2QFY21, compared to a net loss of RM116.3 million a year ago.

The O&G group posted a net profit of RM14.21 million for 1QFY21. The better results were due to improved operating metrics for its engineering and construction (E&C) division.

MIDF Research raised its TP for Sapura to 16 sen from 14 sen, while JF Apex Securities Bhd now has a TP of 20 sen from 18 sen previously. Both maintained their "buy" calls for the stock.

CGS-CIMB Research, which also raised its TP for Sapura, albeit lower than the rest at six sen from four sen previously, however reiterated "reduce" in light of a tough bidding environment for the company.

In a note on Saturday, CGS-CIMB analyst Raymond Yap said Sapura’s earnings before interest, taxes, depreciation and amortisation (Ebitda) and pre-tax margin for the E&C segment had been volatile in the past and may therefore pose significant risk to any estimates of how the E&C business will perform in future quarters.

However, in light of the provision write-back for its E&C segment during the first half ended July 31, 2020 (1HFY21), CGS-CIMB raised its E&C Ebitda margin forecasts to 18% for FY21 from 5% previously, and to 12% for FY22 and FY23, compared with 2% previously.

“We doubt that the FY21 Ebitda margin of 18% will be sustainable at that level into FY22-23 in the absence of write-back and in light of a continuing tough and competitive bidding environment due to low oil prices that have [already] led to oil majors’ capex cuts, although some cost optimisation gains may be sustainable,” said Yap.

Meanwhile, MIDF said although volatility surrounding Sapura’s operating environment remains persistent and exacerbated by the Covid-19 pandemic development, it anticipated that the group will be able to sustain its current quarterly profit level into 2HFY21.

According to Sapura, its order book stands at RM13.3 billion, with RM1.6 billion in cumulative year-to-date new contract wins. The group’s current tender book has also grown by 25% compared to 1QFY21, with tenders valued at RM29.4 billion submitted and in progress.

“Furthermore, we believe that earnings will be lifted in FY22, in line with a gradual ramp-up in E&C project execution milestones in FY21 which will negate the impact of compressed margins and competitive charter rates plaguing its drilling segment,” said MIDF.

At 10.41am, Sapura was 4.35% or half a sen higher at 12 sen, valuing it at RM1.92 billion.