| FYE June 30 | FY2021 | FY2022 | 1QFY2022 | 1QFY2023 |
| Revenue | 889.4 | 715.1 | 207.8 | 130.2 |
| Operating profit | 124.9 | 46.9 | 25.5 | 13.7 |
| (Loss)/Profit before tax | 125.2 | 47.2 | 24.5 | -95.7 |
| Operating profit margin (%) | 14.0% | 6.6% | 12.3% | 10.6% |
| OPBITDA interest coverage (x) | 3.5 | 2.0 | 3.3 | 1.9 |
Source: Pestech
OPBITDA – Operating profit before interest, tax, depreciation and amortisation
Liquidity and cash flow coverage
Table 2: Selected liquidity and cash flow coverage indicators
| FYE June 30 | FY2021 | FY2022 | 1QFY2022 | 1QFY2023 |
| CFO (RM million) | 132.8 | -24.5 | -67.7 | 25.6 |
| CFO interest coverage (x) | 2.2 | -0.38 | -4.83 | 1.29 |
| CFO debt coverage (x) | 0.11 | -0.02 | n.a. | 0.02 |
| CFO short-term debt coverage (x) | 0.27 | -0.04 | -0.12 | 0.04 |
| CFO net debt coverage (x) | 0.13 | -0.02 | n.m. | 0.02 |
| Free cash flow (RM million) | 71.3 | n.m. | n.m. | 21.9 |
| Cash and cash balances (RM million) | 202.3 | 169 | 111.6 | 164.9 |
| Current ratio (x) | 1.28 | 1.35 | n.a. | 1.68 |
| Quick ratio (x) | 1.26 | 1.33 | n.a. | 1.59 |
| Cash ratio (x) | 0.18 | 0.13 | n.a. | 0.12 |
Source: Pestech
CFO – Cash flow from operations
Despite the weaker operating performance in 1QFY2023, the Group’s CFO turned positive (FY2022: negative RM24.5 million) underpinned by higher revenue recognition from contract customer and the fair value gain on the aforementioned asset disposal. Correspondingly, CFO interest coverage ratio stood at 1.3x during the period under review.
As of 30th September 2022, Pestech has RM606.5 million short-term obligations. We note that about 42.9% of the total short-term obligations comprised of revolving credit, which does not have immediate repayment pressure. A breakdown of the Group’s short-term commitments is as below:
| Current borrowings | As at June 30, 2022 | As at September 30, 2022 |
| Lease liabilities | 2.3 | 2.1 |
| Term loans | 119.5 | 126.1 |
| Bank overdraft | 46 | 51.9 |
| Banker’s acceptance | 24.7 | 79.1 |
| Trust receipts | 129.6 | 86.8 |
| Revolving credits | 261.7 | 260.5 |
| Total | 583.6 | 606.5 |
Source: Pestech
Based on the above, we think that the Group’s cash reserves, along with the expected proceeds for the proposed asset disposal would sufficiently support its liquidity needs. Also, the current order book position of RM1.74 billion further strengthens the company’s financial position and credit metrics.
As of end-November 2022, the total outstanding under the perp stood at RM100.0 million. We anticipate that the proceeds from asset disposal were done in preparation for redemption of the outstanding bond on the first callable date, 16th October 2023. To recap, the perp has a tenure of non-callable of 3 years, with an initial periodic distribution rate of 6% p.a..
For clarity, we have tabulated the periodic
distribution schedule with the expected step-up coupon payment (if not called
on the first callable date) as below:
Payment schedule
Table 4: Profit payment and principal repayment schedule
| Payment Date | Coupon rate^ (%) | Profit payment | Principal repayment (RM million) |
| 18-Apr-22 | 6.00 | 6.00 | - |
| 17-Oct-22 | 6.00 | 6.00 | - |
| 17-Apr-23 | 6.00 | 6.00 | - |
| 16-Oct-2023* | 6.00 | 6.00 | 100 |
| 16-Apr-24 | 9.00 | 9.00 | - |
| 16-Oct-24 | 9.00 | 9.00 | - |
| 16-Apr-25 | 10.00 | 10.00 | - |
| 16-Oct-25 | 10.00 | 10.00 | - |
| 16-Apr-26 | 11.00 | 11.00 | - |
| -ditto- |
Source:
BPAM
* First callable date
^ Subject to step-up
margin, if applicable
Capital structure
Table 5: Selected capital structure indicator (RM million unless indicated otherwise)
| FYE June 30 | FY2021 | FY2022 | 1QFY2023 |
| Debt-to-OPBITDA (x) | 6.0 | 10.5 | 36.3 |
| DE ratio (x) | 1.64 | 1.47 | 1.61 |
| Net DE (x) | 1.38 | 1.29 | 1.42 |
| Total borrowings | 1,249.70 | 1,361.50 | 1,402.60 |
| - Short-term borrowings | 491.9 | 581.4 | 606.5 |
| - Long-term borrowings | 757.9 | 780.1 | 809.8 |
| Shareholders' funds | 761.7 | 927.5 | 869.3 |
Source: Pestech
DE – Debt-to-equity
Conclusion
Pestech’s business fundamentals remain weak despite
the reopening of economy, blaming on the repercussions from geopolitical
tension and policy tightening. In our opinion, its inability to improve the
company’s cash flow position through its revenue-generating divisions would increase
liquidity concerns going forward. Despite the prevailing circumstances, the
Issuer has demonstrated its full effort and commitment towards fulfilling its
financial obligations effectively and in a timely manner. As pointed earlier, the
proposed disposal sends a positive signal on the Group’s financial profile,
thus, increasing our confidence in the likelihood for the outstanding perp to
be called on 16th October next year.
Disclaimer: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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