The research arm of Kenanga Investment Bank Bhd has given the oil and gas player the thumbs up after it announced yesterday that it had sealed an extension of a charter and service contract with Petroleo Brasileiro SA.

This comes at an especially crucial time given the company’s current financially distressed situation.

Yesterday, Sapura Energy announced that a joint-venture company under its engineering and construction segment, Sapura Navegacao Marítima SA, had secured a two-year extension of the contract for its pipe-laying support vessel (PLSV) Sapura Esmeralda valued at RM580 million.

In a note issued today, Kenanga Investment said this was in line with the group’s “reset” strategy of attempting to secure more asset-based contracts, for example via its vessels and drilling rigs, as such forms of contracts require a smaller working capital outlay.

“The company’s lack of access to credit facilities has made project execution for typical engineering and construction jobs highly uncertain. This is also the group’s second year-to-date (YTD) contract win announcement — bringing YTD wins to RM3.3 billion, with its order book at RM8 billion,” the research firm said.

However, Kenanga Investment said despite the positive news of a contract extension, it believes this is still greatly insufficient to stage a financial turnaround for the company.

The stock is currently still classified under PN17, with its auditors highlighting material uncertainty. Furthermore, the group still carries an unsustainably high debt of RM10.7 billion — all of which are classified as short-term borrowings in its balance sheet.

“As such, we feel some form of external intervention, for example restructuring of current loan structures, borrowings haircut from banks or the emergence of an angel investor, may be necessary before the company could expect a sustainable turnaround,” it added.

The firm has maintained the “under-perform” call with unchanged target price of 0.5 sen per share.

At 10.07am, Sapura Energy’s share price was flat at 4.5 sen with 5.96 million units transacted.