Wah Seong Corporation - Petra Energy buys AHTS from related parties

- We maintain our HOLD recommendation for Wah Seong Corporation, with an unchanged sumof-parts-based fair value of RM1.81/share, pegged to an FY13F PE of 12x – a 25% discount to the oil & gas sector’s 17x.

- Wah Seong’s 27%-owned Petra Energy will be acquiring an additional anchor-handling tug supply (AHTS) vessel called KAS Marine 1 for RM21mil from related parties. The vessel, built in China in 2008, is currently servicing a time-charter for Murphy Sarawak Oil Co Ltd via InOil Co Safety Consultant under a five-year contract from 24 April 2009 to 23 April 2014, with 2 renewal  options of 2 years.

- Petra Energy announced yesterday that it has entered into a conditional sale of shares agreement to acquire a 100% stake in KAS Ship Management Sdn Bhd (KAS) for RM3mil from Shorefield Offshore Services S/B and two individuals. But Petra Energy will also settle Shorefield’s advances of RM18mil to KAS, which has borrowings of RM24mil. Shorefield’s major shareholder is Dato’ Bustari Yusuf, who also has a 30% stake in Petra Energy. This related-party acquisition is expected to be completed in 2Q2013.

- The vessel, which has an engine capacity of 5,150 brake horse power (bhp), is valued at US$15mil (RM45mil) while BDO Consulting’s valuation of KAS ranges from RM2mil to RM4mil. A new China-built 5,000 bhp vessel costs around US$12mil-US$13mil, depending on the onboard equipment. However, we view the acquisition price as fair given that KAS comes with a charter contract which could potentially be extended for another 5 years. We are positive on this development given the recent upward trend in AHTS charter rates and improvement in utilisation rates.

- Petra, which will have a 30%-stake in the small field risk-sharing contract with Coastal Energy for the Kapal, Banang and Meranti fields, currently has 4 charters with Petronas Carigali involving 2 AHTS and 2 workboats, which will expire in 2013-2015. Hence, the new AHTS will further expand the group’s offshore support vessel segment. We continue to be positive on Wah Seong’s recent investment in the 27% equity stake in Petra Energy even though its proposed 1-for-2 rights issue could mean a further  investment of RM46mil, potentially increasing Wah Seong’s total investment by 44% to RM140mil. The stock currently trades at a fair FY13F diluted PE of 12x (vs. the 3-year range of 10x-13x), but uncertainties over the group’s 470,000ha oil palm plantation investment in the Republic of Congo continues to cap interest in the near term. 

Source: AmeSecurities