UMW Oil & Gas Corporation Bhd Expensive Acquisition Aborted

Transcription

1 A Member of the TA Group MENARA TA ONE, 22 JALAN P. RAMLEE, KUALA LUMPUR, MALAYSIA TEL: / FAX: UMW Oil & Gas Corporation Bhd Expensive Acquisition Aborted THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* C O M P A N Y U P D A T E Friday, May 05, 2017 FBMKLCI: 1, Sector: Oil & Gas TP: RM0.81 (ex-rights: RM0.43) Last Traded: RM0.69 (ex-rights: RM0.40 Abel Goon Tel: ext abelgoon@ta.com.my Hold The News UMW Oil and Gas Corporation Bhd (UMWOG) has terminated the deal to acquire Icon Offshore and Orkim. Subsequently, it announced a 14-for-5 rights issue with 1-for-4 free warrants. Issue price for the rights has been set at RM0.30/share which implies a 25.0% discount to the current theoretical exrights price. The rights issue will be fully underwritten by PNB up to its 65% stake. Meanwhile, for the remainder, if necessary, it will be taken up via redeemable convertible preference shares (RCPS) with subscription price of RM0.30/share. The proposal is expected to be completed in 3QFY17 and is conditional on PNB obtaining exemption to undertake a mandatory general offer. Our View The news is a positive surprise as we had previously expected the Icon-Orkim acquisition to succeed given PNB s large shareholding. Furthermore, we believe the new proposals are significantly better for reasons as stated below: Old Proposal Acquisitions are expensive and lack synergistic benefits Highly dilutive as new shares shall be issued to Icon shareholders New Proposal Aborted acquisitions allow UMWOG to focus on its core business, i.e. jackup rigs. No dilution if shareholders choose to subscribe to rights issue RM850mn to pare down borrowings RM1.5bn to pare down borrowings RM1.8bn rights issue is partially underwritten (only RM1.3bn) May erode UMWOG s cashpile if Icon shareholders choose cash over shares RM1.8bn rights issue is fully underwritten UMWOG s cashpile remains intact, and lower debt allows for refinancing flexibility Gearing reduction to 0.9x Gearing reduction to 0.56x 1 Share Information 4 Bloomberg Code UMWOG MK Stock Code 5243 Listing Main Market Share Cap (mn) 2,162 Market Cap (RMmn) 1,492 Par Value (RM) wk Hi/Lo (RM) 1.04/ mth Avg Daily Vol ('000 shrs) 2,663 Estimated Free Float (%) 19.8 Beta 2.5 Major Shareholders (%) UMW Holdings Skim Amanah Saham EPF Forecast Revision (%) FY17 FY18 Forecast Revision (%) Core Net Profit (RM mn) (318.0) (267.7) Consensus (272.9) (181.7) TA/Consensus (%) Previous Rating Sell (Upgrade) Financial Indicators FY17 FY18 Net (Debt)/Equity (x) ROA (%) (5.0) (4.4) ROE (%) (16.5) (16.1) NTA/Share (RM) P/NTA (x) Share Performance Price Change (%) UMWOG FBMKLCI 1 mth mth (1.4) mth (18.8) mth (24.6) 6.1 (12-Mth) Share Price relative to the FBM KLCI Minimal increase in working capital of RM50mn Sizable increase in working capital of RM310mn Utilisation of Proceeds UMWOG intends to utilise the lion s share of the proceeds (RM1.5bn) to pare down its debt as it aims to reduce finance costs. The group estimates finance costs savings of circa RM60mn per annum. Furthermore, as debt is reduced, the Group will have more flexibility in refinancing. Thus, this will release the RM308mn cash set aside to repay UMW Holdings Bhd. The remaining RM316.1mn will be utilised as working capital and to defray expenses related to this proposal. The boost in working capital will allow UMWOG to sustain a healthy cashflow, thus allowing it to survive the downturn in the oil and gas sector. Source: Bloomberg Page 1 of 5

2 Other Key Takeaways Impact Acquisition was aborted by management after considering amount of capital required. Furthermore, it is highly likely that PNB will secure the exemption needed to prevent the triggering of a mandatory general offer. UMWOG will be able to breakeven with 6 out of 7 rigs working. Tender activities have increased and UMWOG expects a much better utilisation rate as compared to last year. Firm orderbook stands at RM478mn whereas optional orderbook stands at RM418mn. Maintain our earnings forecast pending approvals for the rights issue. Valuation We expect UMWOG s FY17 to be back-loaded as many of its rigs remain idle in 1HFY17. Going forward, we believe demand for jack-up rigs will pick up and cost cutting measures will improve cashflow. Given the more favourable outlook after the termination of the Icon-Orkim we upgrade UMWOG to HOLD with higher TP of RM0.81 based on higher 0.9x FY17 P/B (previous: 0.54 based on 0.6x FY17/P/B). The higher multiple is in-line with our oil and gas bellwether Sapura Energy. Risks to our call include 1) failure to secure contracts, and 2) decreased demand for jack-up rigs. Figure 1: Jackup Fleet Status Rig Built/ Delivery Client Contract Period Contract Tenure Current Location NAGA Sold Labuan NAGA 2* 2009 Ophir/ Vestigo 4-5 months Starting 2Q17 Terengganu NAGA Awaiting Contract Kemaman NAGA Awaiting Contract Kemaman NAGA 5 May 2014 NAGA 6 Sep 2014 NAGA 7 Dec 2014 Petrofac 3-4 months Starting 2Q17 Kemaman Petronas Carigali Petronas Carigali May May yrs Sarawak Until 2Q yrs Sabah NAGA 8 Sep 2015 Hess Until 1Q yrs NMB *Two different contracts to Ophir and Vestigo Figure 2. Utilisation of Proceeds Utilisation of Proceeds % RM mn Timeframe Part repayment of borrowings , months Working Cap months Defray estimated expenses relating to proposals months TOTAL ,816.1 Page 2 of 5

3 Figure 3. Share cap movement UMWOG Full right subscription No rights subscription except PNB Current 2, ,162.0 Right RM0.30 6, ,206.1 RCPS RM ,847.5 Total shares 8, ,368.1 Figure 4. Salient terms of RCPS Figure 5. Salient terms of Warrants Figure 6. Dilution given 100% subscription Figure 7. Dilution given 0% subscription Issued and paid up share capital 2,162.0 Right RM0.30 6,053.6 Free RM ,513.4 Fully-diluted share cap 9,729.0 FY17E FY18F FY19F Projected net loss (RM mn) (318.0) (267.7) (176.9) Add: After-tax income from rights Add: After-tax income from warrants Revised net loss (221.0) (170.7) (79.9) Current Loss per share (sen) (14.7) (12.4) (8.2) FD Loss per share (sen) (2.3) (1.8) (0.8) Dilution (%) *assuming interest rate of 4% and equal to borrowing rate Issued and paid up share capital 2,162.0 Right RM0.30 1,206.1 Free RM RM0.30 4,847.5 Fully-diluted share cap 8,517.1 FY17E FY18F FY19F Projected net loss (RM mn) (318.0) (267.7) (176.9) Add: After-tax income from rights Add: After-tax income from warrants Revised net loss (221.0) (170.7) (79.9) Current Loss per share (sen) (14.7) (12.4) (8.2) FD Loss per share (sen) (2.6) (2.0) (0.9) Dilution (%) *assuming interest rate of 4% and equal to borrowing rate Page 3 of 5

4 Earnings Summary Income Statememt Balance Sheet FYE 31 Dec (RMmn) E 2018F 2019F FYE 31 Dec (RMmn) E 2018F 2019F Revenue Property, Plant & Equip 6, , , , ,720.1 EBITDA (32.8) Associates Depreciation (242.1) (285.4) (249.5) (240.1) (231.5) Others Net finance cost (38.6) (100.4) (97.2) (100.4) (100.5) Non-Current Assets 6, , , , ,063.2 Share of Associates Exceptionals (328.9) (765.5) Inventories Pretax Profit (348.4) (1,183.5) (317.3) (267.1) (176.5) Trade and other rcvb Taxation (20.0) (5.5) (1.5) (1.2) (0.8) Cash and Deposits MI (0.8) Others Net Profit (369.3) (1,186.2) (318.0) (267.7) (176.9) Current Assets 1, Core Net Profit (40.4) (420.7) (318.0) (267.7) (176.9) Total Assets 7, , , , ,852.0 Per Share Data Core EPS (sen) (1.9) (19.5) (14.7) (12.4) (8.2) LT Borrowings 1, , , , ,200.9 DPS (sen) Due to Holding Co Book Value (RM) Others NTA (RM) Non-Current Liabilities 1, , , , ,510.2 Ratios ST Borrowings 2, , , , ,440.4 FYE 31 Dec (RMmn) E 2018F 2019F Trade & other Payables Valuations Due to Holding Co Core PER (x) (36.9) (3.5) (4.7) (5.6) (8.4) Others Dividend yield (%) Current Liabilities 2, , , , ,853.5 EV/EBITDA (x) 17.3 (144.2) P/BV (x) Total Liabilities 4, , , , ,363.6 P/NTA (x) FCF Yield (%) (101.4) (14.9) 5.2 (0.9) 6.6 Share capital 1, , , , ,081.0 Reserves 2, , Profitability ratios Minority Interests EBITDA margin (%) 31.0 (10.2) Equity 3, , , , ,488.4 EBIT margin (%) 2.2 (99.2) (51.0) (34.2) (13.6) PBT margin (%) (41.5) (368.9) (73.3) (54.6) (31.3) Total Equity + Liabilities 7, , , , ,852.0 Core Net margin (%) (4.8) (131.1) (73.5) (54.7) (31.4) Core ROE (%) (1.2) (18.7) (16.5) (16.1) (11.9) FYE 31 Dec (RMmn) E 2018F 2019F Core ROA (%) (0.5) (6.4) (5.0) (4.4) (3.0) Cash Flow Statement Pretax Profit (348.4) (1,183.5) (317.3) (267.1) (176.5) Liquidity ratios Depreciation Current ratio (x) Net Interest Quick ratio (x) Associates & JCEs (0.5) (0.5) (0.5) (0.6) (0.6) Working Cap Changes (92.8) Leverage ratios Income Tax Paid (20.0) (4.1) (1.5) (1.2) (0.8) Total Debt/ Assets (x) Others Total Debt/Equity (x) CF from Operations (119.2) (65.4) Net Debt(Cash)/ Equity (x) Interest Coverage (x) 0.3 (2.7) (1.9) (1.5) (0.7) Capex (1,773.1) (21.7) (43.3) (48.9) (56.4) Acquisitions/Disposal Growth ratios Interest Received Revenue (%) (17.4) (61.8) Others (88.2) EBITDA (%) (36.9) >-100 > CF from Investing (1,837.0) 84.4 (27.1) (37.4) (46.6) PBT (%) > (73.2) (15.8) (33.9) Core Net Profit (%) >-100 >-100 (24.4) (15.8) (33.9) Share Issuance Core EPS (%) >-100 >-100 (24.4) (15.8) (33.9) Net Change in Debt 1,232.7 (70.5) (50.0) (50.0) (50.0) Interest Expense (64.1) (117.3) (113.4) (111.9) (110.3) Key Assumptions Others Average Rig Fleet DCR (USD'k) CF from Financing 1,211.1 (70.5) (163.4) (161.9) (160.3) Average Rig Fleet Utilisation (%) HWU Average Utilisation (%) Net Cash Flow (250.6) (105.3) (255.9) (91.5) (52.8) HWU Revenue per Day (RM'K/day) Beginning Cash 1, Exchange Rates Ending Cash Deposits Held in Bank 0.0 (336.5) (336.5) (336.5) (336.5) Page 4 of 5

5 (THIS PAGE IS INTENTIONALLY LEFT BLANK) Stock Recommendation Guideline BUY : Total return within the next 12 months exceeds required rate of return by 5%-point. HOLD : Total return within the next 12 months exceeds required rate of return by between 0-5%-point. SELL : Total return is lower than the required rate of return. Not Rated: The company is not under coverage. The report is for information only. Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium. Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. for TA SECURITIES HOLDINGS BERHAD(14948-M) (A Participating Organisation of Bursa Malaysia Securities Berhad) Kaladher Govindan Head of Research Page 5 of 5