Sapura Energy Bhd: A Deep Dive into Financial Performance and Strategic Outlook

By UOB Kay Hian | Dated: 13 December 2024

Introduction

Sapura Energy Bhd, an integrated engineering, procurement, construction, installation, and commissioning (EPCIC) oil and gas player, has been under the financial spotlight as it navigates through market challenges. In this comprehensive analysis, we’ll explore the company’s current financial performance, strategic initiatives, and future outlook, providing insights for investors and stakeholders.

Financial Performance Overview

Sapura Energy’s nine-month financial year 2025 (9MFY25) core profit met expectations despite facing setbacks in the rig and Joint Venture (JV) PLSV operations. The company is transitioning to new multi-year contracts, with high subsea demand driving additional opportunities. Sapura Esmeralda, a key asset, secured additional backlog for three months at lucrative spot rates, showcasing the company’s ability to capture market opportunities.

Detailed Financial Analysis

Third Quarter FY25 Results

The company’s revenue for the third quarter of FY25 stood at RM1,152.9 million, reflecting a 4.6% quarter-on-quarter (qoq) decrease but a 4.4% year-on-year (yoy) increase. The Engineering and Construction (E&C) segment generated RM700.3 million, benefiting from the completion of two projects and the continuation of ten ongoing projects. The Operations and Maintenance (O&M) segment reported RM192.8 million in revenue, thanks to higher settlement claims. However, the drilling segment faced a decline, attributed to reduced revenue days and increased idle periods.

Profitability and Financial Health

The company reported a pre-tax loss of RM261.2 million, significantly impacted by the rig segment’s challenges, including high depreciation and idle days. Finance costs increased due to additional financing charges, while PLSV EBITDA saw a temporary dip. Despite these challenges, the company maintains a robust order book of RM6 billion, with an additional JV order book of RM5.8 billion, indicating strong future potential.

Strategic Initiatives and Outlook

SapuraOMV Sale and PSC Developments

The sale of SapuraOMV was successful, pending outcomes related to Production Sharing Contracts (PSC) for SB331 and SB332. As SAPE engages with Petronas, the outcome of these discussions will significantly impact future operations and strategic directions.

Brazilian Ventures and PLSV Operations

In Brazil, Sapura Energy’s PLSVs faced startup delays for new contracts, affecting average daily charter rates. However, strategic extensions and lucrative spot opportunities have boosted the backlog. The company anticipates a surge in average DCR from FY26, driven by new Petrobras contracts, which augurs well for future financial performance.

Focus on Free Cash Flow (FCF)

As SAPE works towards formalizing its regularization plan amid PN17 status, the focus remains on improving FCF. This includes managing execution risks via working capital and capex while leveraging steady returns from JVs. The anticipated increase in DCR from FY26 is expected to enhance EBITDA margins significantly.

Valuation and Recommendation

UOB Kay Hian maintains a “BUY” recommendation for Sapura Energy, with a target price of RM0.07. This valuation considers the potential sale of SapuraOMV and anticipated improvements in FCF. The renewed PLSV contracts, with attractive DCRs, present a promising outlook despite the company’s financial challenges.

Environmental, Social, and Governance (ESG) Considerations

Environmental Initiatives

Sapura Energy has initiated disclosures of greenhouse gas emissions, aligning with global standards, and improved its Loss Time Injury Frequency from 0.62 to 0.27 in FY24.

Social and Governance Aspects

The company has enhanced its diversity efforts, with female staff representation at 36% and board representation at 9%. Governance is strengthened by having 55% independent board members, ensuring transparency and accountability.