KUALA LUMPUR: CIMB Equities Research sees value emerging in Sapura Energy after the sharp sell-off on Thursday after its 9MFY1/18 core net loss of RM186mil was almost four times higher than its previous loss forecast, while consensus had forecast a profit.It said on Friday engineering and construction (E&C) margins weakened more than expected, leading it to downgrade its earnings forecasts materially. It also cut its sum-of-parts based target price to RM1.42 from RM1.63. It closed at 97 sen on Thursday.“While conditions remain tough, we upgrade the recommendation from Hold to Add as long-term value is now emerging from the sharp sell-off yesterday afternoon. We expect narrowing losses from FY19F onwards to help lift the share price,” it said.CIMB Research said Sapura Energy’s deep core net loss of RM194mil in 3QFY18 was mainly due to the large on-year fall in E&C profits, coupled with drilling’s decline into its second-consecutive quarterly loss.Reported losses were even larger, with RM46mil in share of losses arising from the sale of the Sapura 3000 by 50%-owned SapuraAcergy to Sapura Energy, and RM22mil in net forex loss.“This was Sapura Energy’s worst-ever quarterly performance since the oil price downturn began,” it said.E&C’s 3QFY18 was particularly weak, as work for ONGC slowed down with the onset of the Indian monsoon, and as pipelay work on Turkey’s TANAP project began only at the tail-end of the quarter.The orderbook implies 4QFY18 revenue of RM1bn for E&C, down 36% on-year and not much improved on-quarter, suggesting another weak set of quarterly profits.“Against estimated E&C revenue of RM4.3bil in FY18F, Sapura Energy only has contracts worth RM1.5bil for FY19F. We have forecast E&C revenue of RM4bil for FY19F.“Although a weak 1HFY19F is very likely, Sapura Energy may secure new offshore vessel and fabrication work that may help it do better in 2HFY19F.

Source: The Star December 08, 2017 00:24 UTC