News The
Edge Daily today mentioned that Wah Seong (“WASEONG”) had emerged as one of the
frontrunners to acquire the 26.9% equity stake equity interest in Petra Energy
Bhd “PENB” that Perdana Petroleum is looking to pare off.
Deputy managing
director, Giancarlo Maccagno has acknowledged the company was interested in the
block but has yet to make an official bid.
The other contender
is Pan Sarawak Holdings, a Sibu-based management services provider.
At Petra Energy’s
closing share price of RM1.25/share, the stake is worth RM72m.
Comments Neutral. We are surprised at the news as this
will be a totally different direction for WASEONG as Petra Energy is in the
brownfield services industry, which caters to hook-up and commissioning and maintenance
works.
That said, the RM72m
consideration will not be too much of a stretch for the company given its cash
and equivalents of RM579m. Even at RM1.50/share (which we believe is the book
value of the Petra Energy shares in Perdana Petroleum), the full stake will
only cost WASEONG around RM86.6m (+RM14.4m), which we believe is still manageable.
We take this as a
sign that the company is activelylooking to diversify its service range, which
in the longer run could be beneficial given that the pipecoating industry looks
highly competitive after its main competitor Bredero-Shaw took over ailing Italian
company Socotherm.
However, this would
be contingent on Petra Energy securing more projects going ahead. Consensus pegs Petra Energy’s net profit at RM23.6m,
which would accrete RM6.4m (26.9% stake) to WASEONG, if bought over.
Outlook Short-term project replenishment will be
fuelled by domestic projects like the North Malay Basin and pipeline
replacement due to Petronas’ asset rejuvenation plans.
Longer term, its
pipe-coating plant with Louisiana (JV with Insituform) will enhance its reach
in the Gulf of Mexico.
Forecast Maintain earnings estimates at this juncture pending
more information on the above matter.
Rating MAINTAIN OUTPERFORM
Valuation We
maintain our TP of RM2.23 based on a targeted 14x FY13 PER.
Risks Inability to secure more contracts going
ahead.
Lower than expected
margins.
Source: Kenanga
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