Sapura Energy staring at liquidity, job delivery & execution pitfalls

KUALA LUMPUR: It will be an uphill task for Sapura Energy Bhd to turn around its operations in the near-to-medium term due to heightened cost overruns in its projects and liquidity issues, Hong Leong Investment Bank Bhd (HLIB) said.

HLIB said liquidity would be an issue for Sapura Energy arising from difficulties to obtain funding due to its balance sheet distress as it was now officially a PN17 company.

Besides that, HLIB said there would be risks in job delivery and execution risks as Sapura Energy had yet to display a satisfactory track record in recent years and challenges in winning jobs due to its stretched balance sheet. 

"As at end-July 2022, Sapura Energy's orderbook stood at RM7.7 billion. We continue to expect current hurdles and uncertainties to continue in FY23. 

"The group's net debt level continued to deteriorate, to RM10.3 billion as at end-second quarter (Q2) FY23 from RM9.9 billion as at end-FY22. Sapura Energy's net gearing stood at 54.3x as at end-Q2 FY23," HLIB said in a note today.

Sapura Energy yesterday announced Q2 FY23 core net loss of RM77 million which brought first half (1H) FY23's core net loss to RM280 million.

HLIB said this was within expectations based on the firm and consensus full-year net loss forecast of RM758 million and RM571 million respectively. 

HLIB has ceased coverage on Sapura Energy on the back of the group's stretched and deteriorating balance sheet and lack of investor interest on the company. 

Hence, HLIB's previous "Sell" recommendation and target price of one sen on Sapura should no longer be used as a reference going forward.