Friday 15 April 2016

Sapura Resources Bhd: Unlocking of shareholder value or value trap?



On 16 March 2016, Sapura Resources Bhd (Stock Code: 4596) listed on Bursa Malaysia had announced the signing of conditional share sale agreement to dispose several of its associate companies namely APIIT, APU, APIIT Lanka and APS to ILMU Education Group (linked to Malaysian Government private equity arm Ekuinas) for a total combined cash consideration of RM315million.

Post disposal of the above associate companies, Sapura Resources will be left with huge cash pile to focus on its remaining business segment ie property development and aviation services (charter of jets for air travel).
A simple computation as below would have shown a discount of share price to its net cash per share value as of writing (15 April 2016) upon completion of the share sale agreement and receipt of full cash balance:
Before any investor start drooling over the potential 28% discount to cash per share, as at to-date, management has not present any indication of a large one off distribution as the only distribution would be a one off special dividend amounting to RM0.05 per share.

The cash buffer may serve as a margin of safety for those who are interested in riding along the expansion of its property development business and aviation business.

Based on the estimation from its quarterly results, the property segment would make up the bulk of its income going forward as it is currently enjoying a healthy rental income from its stable of 3 properties as per disclosed in its annual report with >90% occupancy. Latest quarterly results had also showed a contribution of PBT amounting to RM10million. Future development may eat into its cash pile going forward as well.

The dark horse would be its aviation sector as it is currently showing a loss of RM3.5million per latest FY ended 31 Jan 2016.

Assuming an estimated cash burn rate of RM6million per annum (as implied by its latest operating loss), discount of cash balance would be completely narrowed to nil within 5 short (or long?) years.

Since the announcement of the deal, prices have started to drift lower from an intraday high of RM1.60 (one day after the announcement on the 17th March 2016) to a current low of RM1.16.
Investor may use the current discount opportunity for entry should it be confident of its top management linked to Tan Sri Shahril bin Shamsuddin of SapuraKencana Petroleum fame.

Pros: Margin of safety for discount to net cash per share, healthy net rental income as cash flow buffer for future expansion

Cons: Adverse downturn affecting its current aviation business segment, unforeseen large losses on its aviation business segment.

Note: This is not an investment advice. Buy and sell any securities at your own risk.


Disclosure as at time of publication: None.

No comments:

Post a Comment