Excerpts from analysts' reports
Analyst: Lee Yue Jer, CFA (left)
Chinese conglomerate Fosun International has just bought Roc Oil for AUD474m, at an EV/(2P+2C) or about USD7.315/boe, which is a 25% premium over RH Petrogas’ current valuation of USD5.83/boe. Similar to RH Petrogas, Roc Oil’s asset portfolio is heavily tilted towards oil. We find RH Petrogas to be attractively valued in terms of EV/(undiscounted working interest value). Maintain BUY and SGD1.19 TP (from SGD1.21).
If the latest transaction is any guide… On 4 Aug 2014, Fosun International Ltd (656 HK, NR) made an AUD474m all-cash offer for Roc Oil (ROC AU, NR), which was accepted by management.
Roc Oil’s asset portfolio includes producing areas in China, Australia and Malaysia, with 2P reserves of 17.4 million barrels of oil equivalent (mmboe) and 2C contingent resources of 33.7mmboe. The oil/gas split is approximately 92%/8%. Stripping out net cash of USD67.2m, the acquisition EV/(2P+2C) multiple is c.USD7.315/barrel of oil equivalent (boe).
RH Petrogas trades at USD5.83/boe. RH Petrogas’ 81.6mmboe of assets are also heavily-weighted towards oil, with a 71%/29% oil/gas split.
The market currently only values these assets at an EV/(2P+2C) of USD5.84/boe. We note that 47.5mmboe of RH Petrogas’ assets relate to its two production sharing contracts in Indonesia which will expire in 2020. We expect 30-year extensions into service agreements (KSOs) before the expiry, which will then allow the company to recognise more reserves and resources. Our TP values RH Petrogas at USD8.54/boe.
Also attractive from an alternative viewpoint. RH Petrogas also appears undervalued relative to its SGX-listed peers, based on an EV-to-undiscounted-working-interest-value measure (see Figure 1) of 7.0%, compared with 10.2% for KrisEnergy (KRIS SP, NR) and 21.0% for Rex International (REXI SP, NR).
National Development and Reform Commission (NDRC) corruption case delays Fuyi-1 approval. The corruption trials in China appear to have held up the approval of the Fuyu-1 Overall Development Plan. We factor in a 6-month delay by lowering our risking percentage by 5ppts to 95%, resulting in a marginal adjustment of our TP to SGD1.19 (from SGD1.21).
Maintain BUY. We continue to see the eventual approval of Fuyu-1 plan, potential M&As, as well as increasing production from its new development wells as near-term catalysts.
Full report here.
Recent story: Buy RH PETROGAS despite no takeover offer; SILVERLAKE target is $1.40
Tiong Woon successfully completed the Roll-On-Roll-Off (RORO), haulage and lifting work for one of Asia’s tallest and largest xylene splitter columns at Jurong Aromatics Corporation’s complex in Jurong Island. Photo: CompanyUOB Kay Hian highlights Tiong Woon's "steep discount to book value"
• Asset play at 0.6x P/B. As highlighted in our initiation report, the major selling point of Tiong Woon is the stock trading at a steep discount to its book value and undervalued property, plant and equipment (PPE) (which consists mainly of the crane fleet) held at cost in the balance sheet.
Our channel checks confirm the hidden value of crane assets (due to the difference in book value and market value under the depreciation policy).
• Continued strong gains from undervalued PPE. Tiong Woon continues to record strong gains on disposal of its PPE in 2014. Based on the back-of-the-envelope calculation, we estimate Tiong Woon to record an 89% gain from the disposal of PPE. (2013: 50% gain on disposal of PPE)
• M&A activity on the rise in the industry. According to sources, Tat Hong, one of the largest crane rental companies in the world, has been engaging private equity firms for a possible privatisation offer. Affinity Equity Partners had earlier put together an offer for Tat Hong, that valued it at S$1.30/share (1.2x P/B), but did not proceed further.
While we do not see Tiong Woon being privatised in the near term, a rise in M&A activity in the industry may shed light on Tiong Woon’s undervalued assets.
• Slow and steady 2015. While there have been some concerns over the delay in the award of contracts or tendering process in the oil and gas (O&G) sector, demand from the O&G sector is expected to remain resilient due to a rise in maintenance jobs.
We estimate a 20% increase in demand for maintenance jobs from the O&G industry for 2015. Major infrastructure projects, such as the airport and rail network, are also expected to support demand for heavy lift and haulage.
• With the gradual scale down in engineering operations, we cut our revenue forecasts by 18% and 20% for 2015 and 2016 respectively but maintain our profit forecasts as there had been minimal contribution from the engineering segment. Engineering contributed S$1,000 to pre-tax profit in FY14.
Full report here.
Recent story: Initiating coverage: TIONG WOON -- Target 45 c; GALLANT -- 57 c