News The
company announced its Petra Energy (“PENERGY”) acquisition shares were priced
at RM1.68/share each with a cumulative cost of RM96.9m.
Completion of the
acquisition is expected by 3QCY12.
Comments As
mentioned previously in our report dated 14 June 2012, the acquisition itself
is a totally new direction for WASEONG given that PENERGY is in the brownfield
services industry (providing hook-up and commissioning and maintenance
works).
In our view, the
acquisition price, which is 6% above Petra Energy’s reference price of
RM1.58/share (based on FY11 net asset per share value of RM340.8m), is fair
given the significant growth expected from Petra Energy (the consensus is
looking at a turnaround for PENERGY in FY12).
The consideration of
RM96.9m is also manageable as WASEONG’s existing cash and cash equivalents
stand at RM579.4m.
Near term earnings
accretion from the stake would be minimal (we estimate associate contribution
of c.RM6.4m based on FY12 consensus net profit of RM23.6m). However, we reckon
the acquisition signals that the company is actively looking to diversify its
service range in the more competitive pipe coating industry after main
competitor BrederoShaw took over ailing Italian company, Socotherm.
In our view, this is
also one of WASEONG’s strategies to beef up its oil and gas division before
demerging it from the other businesses. Recall that such a plan was previously
proposed but was later scrapped when global conditions took a turn for the
worse at that time.
Outlook Short-term project replenishments will be
fuelled by domestic projects like the North Malay Basin (which we believe will
see more newsflows in 2HFY12 given that Petronas has already signed contracts
with Petronas Carigali and Hess Exploration) and also pipeline replacements due
to Petronas’ asset rejuvenation plans.
In the longer term,
its pipe-coating plant in Louisiana (JV with Insituform) will enhance its reach
in the Gulf of Mexico.
Forecast Maintaining our earnings estimates at this
juncture until there is further information on the earnings accretion from
Petra Energy.
Rating MAINTAIN OUTPERFORM
Valuation Our
target price remains unchanged at RM2.23 based on a targeted 14.0x FY13
PER.
Risks Inability to secure more contracts going
ahead.
Lower than expected
margins
Source: Kenanga
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