KUALA LUMPUR: Sapura Energy Bhd’s contract termination of the Yunlin offshore wind farm in Taiwan will be negative for the company, Kenanga Research said.
Kenanga Research analyst Steven Chan said the failure of the project for Sapura Energy was reflective of a wider trend in the industry, whereby many oil and gas (O&G) names were finding it difficult in adopting the energy transition agenda, especially given the current climate of increased costs for raw materials and logistics.
He said financially for Sapura Energy, with the project at 37 per cent completion as at the date of termination, the earnings accretion impact from the project to-date was expected to be very minimal, given the nature of profit recognition being backloaded towards the later stages of completion.
Chan does not discount any possibilities of an impairment in the year ending January 31, 2023 (FY23) to write-off any related project costs incurred thus far, assuming these costs were not reclaimable.
“Based on our very rough back-of-envelope guesstimations, we reckon the contract value to be somewhere around RM200 million, and as such, could see an erosion of up to three per cent from its current order book of RM7.6 billion – a relatively small impact on the grander scheme of things,” he said.
Chan said Kenanga Research made no changes to Sapura Energy’s FY21 and FY22 loss assumptions of RM2.49 billion and RM509 million respectively.
Kenanga Research has reiterated its “Up” call with an unchanged target price of four sen, given the company’s current financial and operational distresses.
“We feel increasingly uncomfortable with the group’s short-term balance sheet and liquidity challenges,” said Chan.
On Friday, Sapura Energy issued a termination notice to Yunneng Wind Power Co Ltd related to a contract for the transportation and installation of monopiles at the Yunlin offshore wind farm in Taiwan.
The company’s wholly-owned Sapura Offshore Sdn Bhd was awarded the contract in March 2019.
The project was initially expected to be completed in September 2020, but completion was delayed to September 2023 following unresolved technical and operational issues that are said not to be attributable to the company.
The 640-megawatt Yunlin offshore wind farm is being developed in the Taiwan Strait by Yunneng Wind Power.
Yunneng Wind Power is jointly owned by Germany’s WPD and Thailand’s Electricity Generating Public Company (EGCO) each holding 25 per cent stakes, Total Energies holding 23 per cent and a Japanese consortium of investors holding the remaining 27 per cent.
Following the termination notice, Sapura Energy said it would pursue its claims via the dispute resolution process prescribed in the contract, namely arbitration under the German Institution of Arbitration in Bremen, Germany.
Source: New Straits Times
