[KLSE Stock Series] Sapura Energy Stock - can it go lower? Should you invest or trade right now?

lipkarlock Friday, May 27, 2022

Sapura Energy - not my circle of competence


One of the stock I try to avoid is energy stock.

Warren Buffet once said:

Everybody's got a different circle of competence. The important thing is not how big the circle is. The important thing is staying inside that circle.


I think the quote above is pretty profound.

Why I did not invest in energy stock? Because energy stock like Sapura Energy is not my circle of competence.

Besides pumping petrol and know that petrol prices can be quite erratic, I have basically not much other knowledge about energy.

Well, I also know that petrol comes from fossil power.



Okay okay, enough science class here.

Let's try to understand about the situation of Sapura Energy stock (KLSE 5218).

As of now, the stock is in pretty dire situation.

What is Sapura Energy Core Business?

Accoriding to the annual report of 2021:

Sapura Energy’s Engineering and Construction business provides end-to-end turnkey Engineering, Procurement, Construction, Installation, and Commissioning (“EPCIC”) solutions for the energy industry, including renewables. Supported by a highly capable and technically competent in-house engineering team, versatile strategic assets, and project management expertise, we deliver high quality services across the full EPCIC spectrum and adjacent markets.

Sapura Energy Share Price Performance


The last closing price (26 May 2022) was just MYR0.075.
The share price has basically drop more than 90% for the past 5 years.
Can it go lower?




In the investing world, nothing is impossible.
I expect this stock to be delisted pretty soon.
Probably will have the similar fate like Serba Dynamik.

Peer Analysis of Sapura Energy



What are some of the industry peers of Sapura Energy?
The peers are:
  • DIALOG
  • YINSON
  • ARMADA
  • DAYANG
  • KNM
  • MHB
  • WASEONG
  • SERBA DYNAMIK
  • UZMA
  • PGB
Except Dialog and Serba Dynanik, the rest of the companies are pretty foreign to me.


Sapura Energy Fundamental Analysis


Why Sapura Energy dropped so much?

Look at the net income chart below.

It is making a huge loss based on the latest annual report.



Essentially, the share price will follow the revenue and net income.

You can see that the problem starts to happen in 2016.
In 2017, the company seems to make some profit recovery.
However, nothing seems to be working since 2018.

Reading the 2021 annual report, it also says that the pandemic also affected the company.
Also, "radical adjustments to the industry's SOP".

Seems like many factor can affect the performance of the company.

With a loss of RM4.5bil in 2020, it is a crazy loss making company.




But if you observe from the share price chart, the share price started to drop already in 2015.
I guess somehow the market can sense that something is already not working in 2015.
Basically oil prices crashed in 2014. And Sapura Energy was not spared as well from the oil price impact.


Sapura Energy - what should we do?


When the company fundamental is not strong, I will avoid in investing, or even trading it.
The risk is very high when the company fundamental's is not solid.

Always remember to only invest in company where the revenue and profit is consistently growing for the past 5 years.

The longer the good track record, the better it is.

With such an unpredictable company, the share price is expected to be very volatile.

In order to have a good night sleep, it is better to avoid this kind of company.

Sapura Energy Valuation


How's the valuation right now?

Let's look at the PE Ratio trend:



Sapura Energy PE ratio now is very low.

Note that when a company PE ratio is low, it doesn't mean that we should invest in it due to bargain.

When the PE is low, it is also a red flag as a lot of selling is happening for the stock.

Hence, we need to ask: why people are selling?

  • Is it because of speculation?
  • Is it because of emotional panic in the market?
  • Or is it because the fundamental of the company is having issue?
Of one the traits of a prudent investor is to be critical in the analysis.

Conclusion


It is better to avoid in investment that we are not familiar with.
It will gives us a lot of good night sleep.

Only invest in company where the fundamental is performing well.

Happy Investing! 😉

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