Sunday, March 11, 2018


Observers pointed to Sapura’s weak cash flow and uncertainties over its order book replenishment.

There is also speculation of Sapura being removed from [the] MSCI Malaysia Index as a result of its market cap size may also pose some downside risks to the share price as foreign shareholding stood at 21% [as of end January 2018].

Observers opine Sapura’s E&C and drilling divisions will continue to suffer from extensive competition and oversupply. One way to stay competitive [in the E&C segment] is to compromise on margins. That puts pressure on Sapura’s E&C division, whose margins are still just too thin.

Basically their results will remain weak for the next few quarters from March 2018. Any new contracts won right now (March 2018) will also require some time before earnings kick in. And contribution from its E&P division is not sufficient to offset losses from the other two divisions in the short run.

Sapura’s only profitable operation is the exploration and production (E&P) division whose prospects are improving with the better oil price.

Its production in the SK310 B15 gas field development project in Sarawak commenced in 4QFY18. It also has two lucrative fields (SK408 and SK310 B14) in the pipeline, which are expected to provide substantial contributions beginning 2020.

Profits aside, news that Sapura is considering listing the E&P division has failed to boost interest in the stock. After the news was confirmed by the group’s management on Jan 25 2018, the share sell-off persisted.

Streets described the potential E&P listing as a double-edged sword. A potential listing of its E&P business is “positive” in the long run as it would allow the group to unlock value and not be dragged down by the existing two business segments. However, this deal also works as a double-edged sword as believe if carved out completely, the ‘leftover’ Sapura would lose its appeal to many existing investors who believe in the monetisation potential of its gas fields.

But the group may have little room to manoeuvre — as at Oct 31, 2017, Sapura’s short-term borrowings alone amounted to RM15.53 billion. 

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