As for the RM1 billion Islamic redeemable convertible preference shares (RCPS-i) issued at 41 sen each on a two RCPS-i-for-five shares ratio, the group received valid acceptances of 2.4 billion for the 2.1 billion available for subscription, translating into an oversubscription rate of 1.2%.

Together with a proposed 50% equity stake in Sapura Upstream to Austria-based OMV Aktiengesellschaft for an enterprise value of US$1.6 billion (RM6.62 billion), we estimate that Sapura Energy’s net profit will surge 2.2 times for the financial year 2020 forecast (FY20F) and 46% for FY21F from the substantive cuts in interest costs, partly offset by the upstream earnings deconsolidation. Additionally, this will cut the group’s FY20F net gearing from 1.7 times to a comfortable 0.5 times.

With the emergence of Permodalan Nasional Bhd as the single largest strategic shareholder with a 40% stake versus Tan Sri Shahril Shamsuddin’s indirect 16.3% stake, we expect greater corporate governance oversight in the group’s operations.

We highlight that Sapura Energy’s longer-term prospects remain strong given its massive new orders worth RM9.3 billion for FY19 to date, which translate into 2.3 times the RM2.8 billion jobs clinched in FY18. With an outstanding order book of RM17.7 billion — three times FY20F revenues, prospects continue to be underpinned by huge new offshore roll-outs globally.

Selected as one of Saudi Aramco’s four new long-term agreement programme contractors late last year, substantive order book expansions are likely from Sapura Energy’s current tender book of US$8.5 billion and prospective bids of US$14.3 billion.

Notwithstanding its improving earnings outlook, the stock currently trades at half its ex-price-to-book value of 0.4 times due to medium-term concerns over the rights share overhang.


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