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Subsequent to its successful bid for the 26.9% stake inPetra Energy (PE) from Perdana Petroleum (PP), WahSeong has announced the pricing details of the deal atRM1.68 per share, or a 5.5% premium over
PE’s net asset
value. While we are positive on this deal as a way of earnings base diversification, we are less sanguine on theon-going USD25m Atama Resources deal, as the operatingrisk is high. Overall,
with its balance sheet’s improvement
over the last few years, we foresee no significant (if any)credit metrics deterioration from these deals. However,reservations over the
further investmentrequirements could create some uncertainty over the
Group’s credit profile. Maintain our forecast and Trading
Buy call at target price of RM2.28.
Slightly lower than previously indicated.
The purchaseprice of RM1.68 is slightly lower than the indicative price of RM1.70 and represents a mild premium of 5.5
% against PE’s
net asset value. The total gross purchase consideration of RM96.9m is digestible even after we factored in Wah
Seong’s early investment commitment in Atama Resources
of USD25m, considering its strong liquidity level with cashholding of about RM580m and balance sheet flexibilitywhich has strengthened over the past few years. Pending
shareholders approval, the transaction is expected tobe closed in 3QFY12.
Diversified earnings base/risk.
We reckon this acquisitionby Wah Seong will allow it to entrench its business withinthe oil and gas value chain, considering
strongexposures particularly in brownfield services segment. Thistransaction may also allow Wah Seong to diversify itsearnings base and risk as most of its current oil and gasbusinesses are relying heavily on one-off contract which issusceptible to contract delay and industry contraction. As asecond largest shareholder, we expect the Group to have atleast a
representative in PE’s board.
Nevertheless, we areless sanguine on its USD25m investment in AtamaResources given the high operating risk involved indeveloping a greenfield plantation asset in a country thatinherited high political risk.
No change in forecast.
Pending the deal, we made nochange to our numbers. For illustrative purposes, based onstreet estimates, the deal could marginally boost Wah
Seong’s bottomline by RM5m in FY13.
Valuation & Recommendation
. We maintained our
call on the counter with target price of
basedon PER of 15x on FY12 EPS of 15.2sen.