- We maintain our HOLD call for Wah Seong Corporation with
an unchanged sum-of-partsbased fair value of RM1.86/share, which implies a
rolled-forward FY13F PE of 13x – a 20% discount to the oil & gas sector’s
16x.
- Wah Seong’s 27%-owned Petra Energy has entered into a
shareholders’ agreement and contractors operating agreement with Coastal Energy
for a 30% equity stake in the small field risk-sharing contract (RSC) to
develop the Kapal, Banang and Meranti (KBM) cluster of small fields in offshore
Terengganu, Malaysia.
- Under the KBM RSC, which will have an 8-year term expiring
on 28 June 2020, the delivery of first oil is expected to be 12 months from the
effective date of 29 June 2012, with the field depth up to a maximum of 4,000
metres from seabed.
- According to Upstream Online, 17 wells will be drilled,
with 10 planned at Kapal, three at Banang and three at Meranti. First oil from
Kapal is scheduled within a year, followed by production from the Banang field
in the subsequent year. The KBM fields are located within 20 kilometres of each
other and in about 60 metres of water.
- There is no guidance for the project cost for now. But
assuming a cost of US$800mil, similar to SapuraKencana-Petrofac’s Berantai RSC
with a project IRR of 15%, we estimate an incremental DCF of RM246mil to Petra
Energy, which translates into 5% of Wah Seong’s current market capitalisation.
- We maintain Wah Seong’s forecasts as the incremental
earnings from the KBM RSC have a negligible impact – assuming interest cost of
6% on Wah Seong’s acquisition price of RM97mil for the Petra Energy stake – on
Wah Seong’s FY13F net profit.
- Petra Energy’s current gearing of 0.6x could easily reach
over 1x to fund the KBM capex. As Petra Energy is also eyeing an enhanced oil
recovery project for matured fields, we expect Petra Energy to undertake a
rights issue which could mean further equity injection by Wah Seong. But this
is a positive development for Wah Seong in the longer term as the group hopes
to grow its recurring earnings base.
- The stock currently trades at a fair FY13F diluted PE of
12x, but uncertainties over the group’s 470,000ha oil palm plantation
investment in the Republic of Congo could continue to cap interest in the near
term.
Source: AmeSecurities
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