Petra Energy: 2 Parties Eyeing Perdana's 26.9% Stake?

THE BUZZ

The Edge Financial Daily reported that Wah Seong and Sibu-based Pan Sarawak Holdings are eyeing Perdana Petroleum (Perdana)’s 26.9% stake, or 57.7m shares, in Petra Energy worth RM72m, or RM1.25/share. We see both parties as a good fit for Petra Energy. Maintain Buy.

OUR TAKE

Wah Seong-Petra Energy partnership may be synergistic. Wesee a synergistic partnership between the 2 parties, especially in future upstream O&G developments. Wah Seong can contribute its pipe coating expertise while Petra Energy is a specialist in the provision of brownfield services. Also, from Wah Seong’s perspective as the purchaser, Petra Energy fits its business model since the former has been looking at buying businesses which provide recurring income to replace its gas compressor business which faces stiff competitive, in order to complement its existing one-off pipe coating business. However, one drawback may be the pricing of the block of shares, as Wah Seong’s management has historically been very prudent on new purchases.

Partnership with Pan Sarawak may increase control of Petra Energy. TheSibu-based private company has its core business in the provision of management services. According to press reports, it has a fragmented shareholding structure, with its largest shareholders being Tai Sing Chii & Sons SB with a 32.9% stake. The balance is owned by Inplaced Capital SB (27.0%), Ting Ming Hoi Enterprise SB (13.0%), Ding Jack Sung Enterprise SB (5.1%), while 25 shareholders hold a combined 22.0%. This company is reportedly closely aligned to Shorefield Resources, which already owns 27.27% of Petra Energy. Therefore, the inclusion of this block of shares may be good from the shareholding control point of view.

However, pricing unlikely to be at the low RM1.25/share. Based on secondary research, we understand that Perdana’s cost in Petra Energy probably averaged RM1.50/share, while Petra Energy’s net assets per share stood at RM1.62 based on its 1QFY12 results. Hence, our view is that it is unlikely that Perdana would sell its entire 26.9% Petra Energy stake at RM1.25/share. Instead, we think a fair price would be RM1.50/share, which is also our fair value for the stock based on PER of 13x FY12 EPS. Also, this does not factor in a premium on the sale since it is the entire block being sold, rather than on a piece-meal basis. In addition, due to Petra Energy’s low liquidity, it is not easy for a new investor or strategic partner to accumulate such a stake. Finally, if Perdana was desperate to sell, it would have done so during its most dire years from 2010-2011 when its vessel utilization was at its worst, rather than now when the O&G industry is seeing a recovery. We understand that pricing matters to Perdana and do not think that the company would sell below its cost.

Maintain Buy. Our fair value for Petra Energy remains unchanged at RM1.50, based on the existing PER of 13x FY12 EPS. Overall, we are positive on either of the two parties taking up Perdana’s 26.9% block in Petra Energy.

Source: OSK