News

Wah Seong announced to acquire 49% equity interest in Alam-PE (JV between Alam and Cimb Private Equity) from CIMB-PE (CIMB Private Equity) for a cash consideration of RM106m.

Once the deal complete, Wah Seong and Alam Maritim will each hold 49% and 51% in Alam-PE.

Alam-PE currently operates a fleet of five vessels (2 support vessel, 2 workboat and 1AHTS) with average age of less than 5 years.

Financial Impact

The acquisition value translates to 6.3x FY13 P/E which we deemed attractive and earnings accretive as compared to OSV peers at 13x.

By assuming debt to equity funding ratio of 70:30, we expect Wah Seong’s FY15 PAT to increase by RM13m or 11%.

Pros/Cons

We are slightly positive on the acquisition as this will be earnings accretive and help to diversify into recurring income vis-à-vis its existing project-based income. We do not rule out any synergy value creation from the potential collaboration with its 27% associate company, Petra Energy.

Total orderbook remain unchanged at RM1.7bn (74% from oil and gas division, 15% from renewable energy and 11% from industrial trading & services) as compared to 4Q13 as the burn rate was offset by the orderbook replenishment. The company is tendering RM4bn worth of job with 80-90% from international.

We expect plantation division to remain in the red in near future. Plantation segment remain in the red due to initial start-up cost. The company plans to plant another 7,500 hectare in 2014-2016.

Risks

• Political risk, Congo Oil Palm Plantation.
• Execution risk.

Forecasts

Unchanged pending completion of the deal.

Rating

HOLD

Positives –

• Infrastructure growth related to new fields.
• Strong balance sheet and acquisition record.

Negatives –

• Acquisition fuelled growth - volatile in downturns.
• Capex burden developing Congo oil palm.

Valuation

Maintain HOLD call with unchanged TP of RM1.96 based on PER of 13x on FY15 EPS of 15 sen/share.

Source: Hong Leong Investment Bank Research - 25 Jun 2014