Maintain SELL and MYR0.03 TP
Excluding the one-offs in 1QFY1/23, SAPE remained in the red for the 5th
consecutive quarter, weighed down by legacy issues (54% of its total
contracts). SAPE remains vulnerable for its negative mix of stretched
balance sheet, tight cash flows, legacy contracts, poor execution and
cost overruns. While an operational and financial restructuring exercise
is underway, turning around SAPE will be a massive challenge and will
take time. We see better values elsewhere for now. Our TP is SOP-based.
1QFY1/23 results: Salient points
Headline net profit of MYR92m in 1QFY1/23 consisted of MYR287m
exceptional items (MYR176m forex gain, est. MYR111m on LAD reversals,
VO etc). Excluding that, SAPE reported core net loss of MYR195m. It
remained EBITDA –ve (MYR144m) for the 3rd consecutive quarter. Its cash
level fell 25% QoQ. Net debt/ gearing levels were at MYR9.6b/ 60.6x
respectively. It remained in: (i) net cash liability (MYR13b; 4th
consecutive quarter) and (ii) negative operating CF (MYR76m) in 1Q23.
A massive challenge to re-engineer its ops
Our estimates are unchanged, expecting SAPE to be in the red in FY23.
While its operational and financial restructuring exercises are currently
underway, turning around SAPE (a PN17 status now) will be a massive
challenge and will take a considerable time. 31% of its FY23 projects are
still exposed to legacy contracts. It has won MYR2.7b (incl. JV’s
MYR176m) worth of new jobs to-date but delivering its order backlog
(MYR8.3b; ex-JV; bid book: MYR22.8b) without further cost overruns/
provisions is crucial, an immediate priority in our view. The need to
divest/ monetize its assets/ businesses (>MYR.300m) is inevitable. SAPE
needs to re-base its costs structure to a much lower level still. Its debt
restructuring is underway.
Risks override reward
We still see better values elsewhere, for now. For an exposure to the
O&G space, we continue to advocate our preference for Hibiscus (HIBI
MK; BUY; TP: MYR1.90) and Yinson (YNS MK; BUY; TP: MYR4.05)