KUALA LUMPUR (March 21): Sapura Energy Bhd emerged as one of the top-actively traded counters on the local bourse on Monday (March 21) after the financially troubled oil and gas (O&G) service provider reported its biggest losses yet in its fourth quarter ended Jan 31, 2022 (4QFY22) results on Friday (March 18).
The stock opened 0.5 sen lower to 3.5 sen and traded unchanged at four sen at the time of writing.
At four sen, the O&G company is valued at RM559.27 million.
It saw a total of 20.63 million shares changing hands, translating into 0.13% of its share issuance of 15.98 billion shares.
The dismal earnings have prompted research houses to cut their calls and target prices (TPs) on the counter — with one going as low as one sen.
PublicInvest Research has cut its call on Sapura Energy to a "trading sell" with a TP of three sen, from five sen previously, given heightened uncertainties on its financial standing.
“Liquidity concerns remain, further hampering the turnaround efforts while limiting its growth prospect. This also has affected certain project execution due to the lack of support from suppliers given the amount still owed.
“The group is in the midst of negotiating with its vendors on outstanding payments and lenders through existing or new facilities and under the scheme of arrangement.
“Meanwhile, renegotiation of legacy contracts, asset monetisation discussion is also ongoing. Additionally, we are troubled at the deficiency in its share capital and its viability as a going concern, which could see it classified as an affected issuer in due course,” the research house said in its note to clients on Monday.
PublicInvest also reckoned that Sapura Energy's profit margin will remain volatile given the difficulties in managing execution costs arising from these projects.
It believes that operating conditions remain challenging due to uncertainties caused by the Covid-19 pandemic.
Concurring with PublicInvest’s view, Hong Leong Investment Bank Research (HLIB Research) also downgraded its call to "sell" with a TP of one sen, from five sen previously, as it believes that Sapura Energy will need more time and effort to turn around its operations into profitability, which the research house do not foresee happening anytime soon.
“We now project a wider FY23-24F net loss of RM717 million and RM706 million respectively to account for lower margins for its engineering and construction (E&C) business division. We also forecast Sapura Energy to eventually dip into negative book value due to the continuity of expected losses in FY23-24F.
“We think that Sapura will not be able to turn around its operations in the near-to-medium term due to: (i) heightened cost overruns in its projects, (ii) liquidity issues from difficulties to obtain funding, and (iii) inability to win jobs due to its balance sheet distress,” HLIB Research elaborated.
On Friday, the group saw its net loss in 4QFY22 widen to a staggering RM6.61 billion compared with a loss of RM216.03 million a year prior, largely due to impairment on goodwill worth RM3.29 billion and impairment on property, plant and equipment worth RM2.1 billion.
Its quarterly revenue dropped significantly by 68.61% to RM453.14 million from RM1.44 billion in the previous year, primarily due to lower percentage of completion recognised in the current quarter resulting from recognition of foreseeable losses and higher project costs in the E&C business segment.
For the full year ended Jan 31, 2022 (FY22), the group recorded a net loss to the tune of RM8.9 billion — its highest ever — from a net loss of RM160.87 million in the prior year as it realised impairment on goodwill and property, plant and equipment worth RM5.39 billion collectively.
Meanwhile, annual revenue fell by 22.84% to RM4.13 billion from RM5.35 billion in FY21 due to lower contribution from its E&C, and operation and maintenance segments.