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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