The share price of Scomi Marine has appeared more attractive
following its recent weakness. The company is the clear beneficiary of the
restructuring exercise of the Scomi group of companies. With RM0.185/share
capital repayment safely in the bag, which will go ex-entitlement this
Wednesday (15 Aug), the other proposed 1.61b new share issue at RM0.47/share of
Scomi Marine in exchange for the assets of Scomi Oilfields’ Eastern countries,
should lend a support base for the current share price level. The price tag is
fairly in line with our fair value of RM0.48/share (ex-repayment) on the stock.
The company is set to announce its 2Q12 results likely on 29 Aug, with the
results expected to be weaker than that of 1Q12 (RM16.4m). We are waiting to
see the consistency of its earnings and track it to our own net profit
projection of RM29.1m. We are retaining our fair value of RM0.665
(cum-repayment) and RM0.48 (ex-repayment) for Scomi Marine.
Price still
attractive despite earlier rally. The share price of Scomi Marine (NOT
RATED) performed fairly well since our first report on the company back in early
May 2012. It rose from RM0.39 three months ago after our report and hit a 52-week
high at RM0.54 on 3 Aug before settling down at RM0.495 last Friday. Despite
the earlier rise, the share price is still attractive for entry at even the current
level as we are of the view that Scomi Marine should be worth RM0.655/share
(RM0.185 + RM0.47) after its restructuring (the proposed 1.61b new share
issuance are already priced at RM0.47/share). This implies a still upside
potential of 32% from here.
Five stages of
restructuring plan. To recap, there are five steps under the restructuring
exercise where, firstly, there will be USD57m worth of equity disposal under
the internal restructuring at Scomi Marine. With the proceeds, Scomi Marine
will distribute RM0.185/share to all its shareholders. In Step 2, the business
of Scomi Oilfield Ltd (SOL), which is under Scomi Group (SGB), will be split
into two groups to be divided geographically into Eastern Hemispheres (SOLEH)
and Western Hemispheres. A NEWCO will be set up in Step 3 and it will take over
Scomi Marine and assume its listing status. In Step 4, the NEWCO will acquire
SOLEH and SGB’s Scomi SOSMA Sdn Bhd (SSSB) and Scomi KMC Sdn Bhd (SKMC).
Lastly, SGB will offer the NEWCO shares to its existing shareholders.
Step 1 near
completion, Step 2 to 4 on the way. The RM0.185/share capital repayment is
already set to be paid out on 29 Aug. On 24 Jul, Scomi Marine announced the
details of the acquisitions of SOLEH, SSSB and SKMC. Under the proposed
acquisitions, Scomi Marine is paying 1) RM1.02b for SOLEH, 2) RM6.7m for SSSB
and 3) RM769k for a 48% stake in SKMC. Scomi Marine will issue 1.61b new share
at RM0.47/share (worth RM756.1m) and assume a total of RM263.9m receivables for
the SOLEH acquisition. Upon completion, SGB’s stake in Scomi Marine will
increase to 65.65% from 42.76% currently. These stages of the exercise are
expected to take three months to be completed.
Fair pricing.
Scomi Marine is paying 23x FY11 PER for SOLEH and 6.8x for SSSB while SKMC is
based on 48% of the adjusted net asset value. On the other hand, the 1.61b new
Scomi Marine shares at RM0.47/share is based on 12.3x FY11 PER. In our opinion,
the acquisition prices are fair especially since SOLEH is one of the world
class players. Based on pro-forma FY11 numbers, the enlarged Scomi Marine’s net
profit will increase to RM65.5m from RM28.0m while the issued shares will rise
to 2.34b shares from 733m shares currently. Based on last Friday’s closing
price, the enlarged market cap would be RM726m, slightly higher than our
previous estimate of RM640m-RM710m.
Fair value of
RM0.665/share. Scomi Marine is likely to announce a weaker 2Q12 results vs.
the RM16.4m net profit reported in 1Q12 although we expect the overall number
to be still likely within our FY12 net profit projection of RM29.1m. We are
maintaining our fair value of RM0.665/share on a cum-cash distribution basis,
based on 7.5x CY12 PER, or at an ex-repayment fair value of RM0.48/share.
Source: Kenanga
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