KUALA LUMPUR: The termination of Sapura Energy Bhd 's contract for the Yunlin offshore windfarm turbines in Taiwan is causing further downside pressure on its share price, especially given the adverse impact of the pandemic on its earnings delivery.

       In a Friday statement, Sapura Energy announced it had issued a termination notice to Yunneng Wind Power Co Ltd in respect of its contract for the transport and installation of monopiles at the Yunlin offshore wind farm.

       The group said the completion of the project was delayed to September 2023 following "unresolved technical and operational issues not attributable to Sapura Energy", which had "significantly altered the basis of the contracts".

       Sapura Energy had opted to terminate the contract following a breakdown in negotiations after Yunneng attempted to enforce contractual claims against Sapura despite the changes in conditions.

       According to a report by AmInvestment Bank Research, the work progress on the project has only reached 36.9% to date.

       The research firm noted that Sapura aims to legally pursue claims against Yunneng under arbitration in Bremen, Germany.

       "While the announcement indicated that the termination will not have any FY22F earnings impact, Yunlin provisions in 9MFY22 may not be sufficient against any counter-claims by the client, if successful," said AmInvestment.

       Meanwhile, the research firm is uncertain over Sapura's negotiation with ONGC on the pandemic-delayed KG-DWN 98/2 central processing platform project, which could face the same fate.

       "With these potentially higher provisions and liquidity issues arising from vendors’ tighter credit policies, the operational landscape for Sapura remains bleak on uncertain delivery and margin prospects over the foreseeable future," it said.

       Sapura's order book has contracted 32% quarter-on-quarter (q-o-q) to RM7.6bil, which translates to a low 1.5 times FY22 forecast revenue given its liquidity crisis in which suppliers are way of extending further credit.

       AmInvestment noted that the group may not have the financial capacity to undertake new jobs against the backdrop of its bid submissions decreasing 37% q-o-q to RM22bil and as management focuses on key geographical areas and market segments.

       "While the group has drawn up a restructuring task force to explore asset divestments to improve liquidity, this may imply further impairments to RM8.9bil fixed assets as well as RM5bil goodwill on past acquisitions over the coming quarters," said AmInvestment.

       The research firm maintained its "sell" call on Sapura Energy with an unchanged fair value of three sen per share.