News KNM Group (“KNM”) announced that it is looking
to list its wholly-owned company Borsig on the main board of the Singapore
Stock Exchange and has appointed UOB Bank Limited as the sole Manager,
Underwriter and the Placement Agent for the proposed listing.
The company expects the listing to be launched
in 2013 with an indicated value of RM1.8-1.9b for Borsig.
Comments To recap, KNM acquired Borsig in 2008 for approximately
RM1.7b. Thus far, it has been one of the key performing subsidiaries of KNM and
underpins the success of KNM’s European operations.
Assuming KNM lists a minimum of 25% of Borsig shares
(in compliance with SGX listing rules), and based on the tentative valuation of
Borsig at RM1.8-1.9b, this could raise a minimum of RM450-RM475m cash for KNM.
We believe that KNM will not want to
relinquish too much of Borsig shares in the near term as it is currently still
one of the main breadwinners for the company.
No details were provided for the usage of the proceeds,
but we hope those proceeds will be utilised as a facility enhancement capex
given that Borsig is currently running at full capacity.
At a quick glance, we note that the average
FY13 trading PER for Singapore’s oil and gas stocks currently stand at around
8.8x, with leaders being the likes of Keppel (12.2x), Sembcorp Marine (14x) ,
Otto Marine (13.9x), Dyna-Mac (13.8x) and Advanced Holdings (15x). This is a
premium to KNM’s current FY13 PER of 6.7x. Hence, a successful listing could potentially
serve as a re-rating catalyst for KNM.
Outlook Management foresees its FY12 earnings to be in
the black due to legacy projects being completed within CY12.
Some plant capacity rationalisations may be
carried out as certain plants (e.g Brazil/Indonesia/Australia) still seem to be
suffering from low utilisations.
The Peterborough project will purportedly
receive financing approvals by Oct-12 with the commencement of EPCC works by
early 2013.
Forecast Maintained our numbers at this juncture until
further details on the listing are announced.
Rating
Maintain MARKET PERFORM
Valuation Fair value of RM0.73/share is maintained,
based on an unchanged 9.0x PER (a discount to the sector’s average of 15.0x due
to the significant earnings risk of the company).
Risks 1) Disappointing forward earnings trend and 2) delays in its larger projects, which are
imperative for margin improvements
Source: Kenanga
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