AmInvestment Bank Research has upgraded Sapura Energy Bhd to “Buy” at 35 sen with a higher target price of 50 sen (from 30 sen) based on a 30% discount to an estimated diluted book value of 72 sen/share, following the completion of its RM4 billion rights issue.
In a note today, the research house said its earlier concerns on the 18.5% undersubscription or 1.8 billion ordinary shares out of the RM3 billion rights shares issued at 30 sen/share on a 5-for-3 basis have been alleviated as the underwriters Maybank Investment Bank, CIMB Investment Bank and RHB Investment Bank have completely disposed of the shares without causing any significant price swings.
“Additionally, we have become more confident of Sapura’s improving earnings prospects which currently stems overseas, principally in the Middle East, Brazil, Gulf of Mexico and West Africa.
“Selected as one of Saudi Aramco's 4 new long-term agreement programme contractors late last year, substantive order book expansions are still likely from Sapura's current tender book of US$8.5 billion with prospective bids of US$14.3 billion,” it said.
The research house said together with the completion of the sale of a 50% equity stake in Sapura Upstream to Austria-based OMV Aktiengesellschaft (OMV) for an enterprise value of US$1.6 billion, it expects Sapura’s net profit to surge by 2.2x for FY20F and 46% for FY21F from substantive cuts in interest costs, partly offset by the upstream earnings deconsolidation.
“Additionally, this will cut the group’s FY20F net gearing from 1.7x to a comfortable 0.5x.
“The stock currently trades at an unjustified ex-PBV of 0.5x for a company poised on an earnings inflection upturn,” it said.
BUY!!!