KUALA LUMPUR: Integrated oil and gas player Sapura Energy Bhd which has been registering losses for the past few years, is expected to narrow its net loss in the coming fourth quarter earnings results, supported by its newly secured contracts and recovering crude oil prices.
Sapura is expected to announce its financial performance in the next few weeks.
The firm narrowed its net loss to RM31.0 million in the third quarter ended October 2018 from a massive RM274.4 million loss in the comparable quarter a year ago.
Analysts opined that Sapura's outlook is bright backed by its RM16 billion order book and a resurgent crude oil prices which is expected to reach US$70 a barrel in the next few months.
AllianceDBS Research analyst Inani Rozidin believes Sapura's core loss will narrow towards the second half of 2019 due to the realisation of new engineering and construction contract wins as well as higher Brent crude oil price to support the energy segment.
"Sapura is also expected to make improvements in the utilisation in the drilling segment from the mobilisation of its units Sapura Alliance in May 2018 and Sapura Berani in July 2018, and this will help earnings to turnaround in 2020," she said in a recent research note to investors.
She said Sapura's long term outlook remains strong as its high orderbook of RM16 billion points to a potential recovery and is optimistic for the firm to clinch further sizeable contract wins, giving the stock a "Buy" recommendation to investors.
Inani said the engineering and construction segment’s contribution will grow steadily in the subsequent quarters, supported by execution and recognition of year-to-date contract wins and the remaining contracts in its orderbook and it is also positive on signals that capital expenditure has bottomed out and contract flows are improving.
AllianceDBS expects Sapura to be profitable by 2020 supported by its drilling segment as it looks for job prospects in Africa and Southeast Asia namely Thailand and Malaysia.
Meanwhile, Public Investment Bank Bhd analyst Nurzulaikha Azali said the research house is positive on Sapura such as its RM3 billion contract with India's Oil and Natural Gas Corp Ltd as it will strengthen the group's presence in the country besides providing further earnings visibility with outstanding orderbook now standing at RM18.6 billion.
"After imputing the debt repayment and factoring in the enlarged share base, our rating on Sapura is raised to outperform, as we believe that the Group is currently in positive transition toward improving its financial health, putting it in a position of growth," said Nurzulaikha.
She added the investment bank has revised Sapura's 2020 and 2021 forecasts higher to reflect the potential cost savings arising subsequent to the debt repayment post-corporate exercise (cash call with Permodalan Nasional Bhd) and 50 per cent Sapura Upstream stake sale to Austria's OMV AG Group.
"We are now expecting the Group to record even better profits in 2020 and 2021 which is estimated to be around RM103 million and RM279.6 million respectively."
This is also based on better recognition in its engineering and construction segment from its huge orderbook and improving outlook on its drilling segment.
Nurzulaikha said Sapura had successfully secured a total of RM8.5 billion worth of contracts thus far year-to-date, pushing its balance in hand to RM18.6 billion which will keep them busy over the next three years.
"The group’s tender book remains strong, growing from US$2.5 billion in 2017 to US$8.8 billion at present with additional prospects of US$14.3 billion for this year.
Furthermore, the Group’s recent entry to into Saudi Aramco’s long-term agreement (LTA) programme will open more engineering and construction job opportunities.
She added with the LTA status, it enables Sapura to participate in the construction of a large number of offshore oil and gas platforms, pipeline, power cables, and related facilities required under the current master plan for Saudi Arabia's Aramco's fields.
"We understand that the Saudi Aramco's gas programmes will attract investments worth US$150 billion over the next decade as it aims to double it gas production, of which Sapura could be a beneficiary."