THE BUZZ - Wah Seong announced on Bursa Malaysia yesterday that its indirect wholly-owned subsidiary, Total Oil Technologies SB (TOT), is disposing of its 51%-owned subsidiary, Deepwater Corrosion Services, Inc (DCS), via a stock redemption by DCS for a total cash consideration of USD3.2m, or RM9.9m based on an exchange rate of USD1.00 to RM3.0787.
OUR TAKE
More on DCS and its disposal. DCS is primarily involved in the manufacturing and the provision of services for offshore corrosion control systems. We understand that the disposal, which was completed yesterday, will also involve TOT’s disposal of its entire 51% stake in Inter Resources, Inc (IRI). (The remaining 49% stake in IRI was held by the other shareholders of DCS.) The total consideration of USD3.2m for the stock redemption was derived from DCS’ EBITDA based on the average multiple for oil and gas services companies in the United States.
No surprise. We do not view the disposal as a surprise move as this is probably part of the group’s strategy of streamlining and rationalizing its core businesses and to divest its non-core businesses.
No changes to our FY12-13 estimates. Wah Seong will pocket some RM9.9m cash from the exercise, but is likely to plough back some of the proceeds into its existing businesses. Even if we assume that the money is idle, this would only enhance our earnings estimates by some 0.3%. Hence we are making no changes to our FY12 and FY13 earnings estimates.
Maintain BUY. As we make no revisions to our earnings forecast, our fair value for Wah Seong is maintained at RM2.33, based on the existing PER of 13x FY13 EPS. With some 33.9% price upside, we maintain our BUY recommendation on the stock.
Source: OSK
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