The rating for Sapura Energy Sdn Bhd (SESB) is reaffirmed at AID reflecting the company’s strength in the marine engineering business; synergies arising from the consolidation of the company under SapuraCrest Petroleum Berhad (SapuraCrest); and its stable financial profile. The rating, however, continues to be moderated by the company’s debt leverage position.

SESB’s main revenue generator continues to be the marine engineering division (82.7%); supported by a fleet of seven vessels. The acquisition of Sarku Santubong in 2003, which is able to position itself without using an anchor even in deep waters, is advantageous to SESB given the increased interest in deep sea exploration. Apart from marine engineering, SESB’s revenue is supplemented by its other divisions namely, maintenance, power, automation and asset management.

SESB’s list of clients include established and reputable corporations such as PETRONAS, ExxonMobil and Shell which carry high credit ratings of at least AA+. As such, credit risk is mitigated.

Revenue continued on an upward trend, underpinned by additional contracts secured from existing clients during the year. In line with the revenue growth, pre-tax profit recorded a 30.5% growth to reach RM23.7 million, by far the highest in its operating history. Operating margin remained in double digits and edged up to 11.9% from 10.0% previously.

SESB’s debt leverage level has pared down over the last two years, aided by the growth in retained earnings. The first redemption of RM20.0 million due in December 2004 is expected to further reduce its debt-equity ratio. As at June 2004, the balance in the Finance Service Reserve Account coupled with permitted fixed deposit investments was RM30.06 million, sufficient to meet the first principal repayment of RM20.0 million and secondary BaIDS payment of RM5.6 million respectively.

Financial flexibility may be drawn from its listed holding company, SapuraCrest, and to some extent, unutilized credit lines and cash balances.

With total contracts in hand of approximately RM265.0 million (including variation orders) coupled with the group’s ability to secure new contracts, SESB’s cashflow position is expected to be manageable in the near term.