KUALA LUMPUR (Feb 11): Shares in Sapura Energy Bhd rose to a two-month high in active trade after the group’s wholly-owned subsidiaries and joint-venture (JV) company were awarded RM1.85 billion worth of contracts and contract extensions, comprising engineering and construction, and drilling works in Saudi Arabia, Thailand, Brunei and Malaysia.

At 10.13am, Sapura Energy had risen 4% or half a sen to 13 sen, valuing it RM2.08 billion. The stock had seen some 201.45 million shares traded.

Meanwhile, Hong Leong Investment Bank (HLIB) Research upgraded Sapura Energy to "buy" at 12.5 sen, premised on a positive outlook due to the group's recent string of contract wins, improved operational efficiency as well as improved prospects of contract wins in the Middle East.

The research house also raised its target price (TP) to 15 sen (from 12 sen) based on 0.3 times (from 0.25 times) book value per share (BVPS) for the financial year ended Jan 31, 2020 (FY20) (below -0.8 standard deviation from the five-year mean price-to-book ratio).

In a note today, HLIB’s Low Jin Wu said Sapura Energy’s win in securing seven contracts (six engineering and construction and one drilling) with a combined value of RM1.8 billion was above his expectations.

Hence, the research house increased its earnings forecasts for FY22-23 by 29/17% respectively to account for the aforementioned contract wins by Sapura Energy.

According to Low, the CRPO 59 LTA contract from Saudi Aramco is a huge step forward with regard to its efforts to expand its footprint in the Middle East.

Therefore, he anticipates more contract wins in the Middle East to come through going forward, although the group had minimal exposure to that region before calendar year 2019 (CY19).

He added: “We believe that Sapura will be in the black from FY21 onwards after being in the red for three consecutive years (FY18-20).”

This is because Low believes that Sapura Energy would be able to capitalise on its contract wins with improved operational efficiencies over the last few quarters as cumulative first nine-month of FY21 (9MFY21) operational expenses decreased by 35% year-on-year (y-o-y).

In terms of refinancing, the research house believes that Sapura Energy would be able to refinance its short-term debt by a tenure of at least five years, and it will be done by the first half of CY21 (1HCY21).

“Its recent trend of contract wins and cost optimisation measures would be able to soothe the refinancing process,” it said.