THE BUZZ
Yesterday, Tanjung Offshore (Tgoff) announced that it is
rationalizing its business by: (i) disposing
100% equity in Tanjung Kapal SB (TKS) which owns 16 offshore support vessels to
major shareholder Ekuinas, and (ii) re-organizing its non-marine business.
OUR TAKE
Rationalization plan.
Tgoff has entered into a conditional agreement with Kota Bayu Ekuiti SB (KBE) –
a 100%-subsidiary of E-Cap (Internal) One SB (E-Cap) that in turn is a major
shareholder of Tgoff with a 24% equity stake – for the disposal of 100% or
10.0m shares in TKS to KBE for RM220.0m. On top of this RM220.0m, TKS will also
settle the advance from Tgoff worth RM43.8m. Upon the completion of this deal,
Tgoff will distribute RM130.0m or RM0.44/share to its shareholders and it will
be left with only the non-marine business. Also, E-Cap will offer Tgoff
shareholders redeemable convertible preference shares (RCPS) of RM0.01 held in
KBE at an offer price of RM1.00/RCPS to enable Tgoff shareholders to
participate in the growth of TKS (which is Tgoff’s offshore support vessel division).
This will be done within the period of less than 3 months from
the RM130.0m cash distribution date. In fact, E-Cap intends to list KBE on the Main Market of Bursa Malaysia within 2
years from the issue of RCPS and the existing RCPS holders would be able to
convert the RCPS into KBE's shares at 1:1 ratio at RM1.00.
Purchase of TKS at
PER of 7.2x and PBR of 1.1x. TKS is principally involved in providing ship
management services to the O&G industry. As at 31 Dec 2011, both its net profit
and net asset stood at RM30.4m and RM207.7m respectively. The purchase consideration offered is
reasonable and well within the industry averages.
Tgoff will be left
with only non-marine businesses. Tgoff’s remaining businesses include: (i)
equipment, (ii) engineering, and (iii)
maintenance services. To achieve better efficiency
for the overall group moving forward, Tgoff would need to
undergo closure of non-core businesses, closure of loss-making
businesses, rightsizing of manpower and further streamlining of
organization structure. Also, it is
prohibited from operating in any business which competes with that of TKS
within a 3-year period.
Utilization of
RM220.0m proceeds. The proceeds from the sale would be used in this manner: (i) RM130.0m
for the proposed distribution, (ii) RM89.0m for working capital and non-marine
business expansion, and (iii) RM1.0m for disposal expenses.
Maintain Sell. We
are keeping our FY12-FY13 forecasts unchanged for now and hence, its fair value
too (pending a meeting with the
management). Without its vessel business, we believe Tgoff would have lost
about 70% of its profit, assuming
that all its other businesses are
profitable too. However, this exercise would probably be good for its longterm
survival as it enables the company to focus on its non-marine businesses (with the aim of turning them around) as well
as repay some of its borrowings.
Source: OSK188
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