Affin upbeat on Hai-o MLM division
shares at an issue price of RM2.80 each.
The placement if fully taken up will raise gross proceeds of RM1.6bil which will be used to satisfy payment to Seadrill as well as defray expenses of RM119mil relating to the transaction.
To note, the RM743mil redeemable exchangeable preference shares (REPS) proposed earlier will no longer be undertaken.
Recall that SAKP has earlier announced a proposed base placement to be undertaken immediately to finance the said Seadrill transaction and a proposed additional placement subsequent to the completion of the said transaction.
Both of these placements are supposed to issue up to 586 million new SAKP shares. Yesterday’s announcement effectively combined the earlier two placement proposals into one.
We view that this placement is attractively priced, at an 8% discount to yesterday’s closing price of RM3.04 and 27% discount to our target price of RM3.86.
With the Seadrill deal on track for completion by end-April, financial year 2014 is going to see a boost of 84% to earnings per share even after accounting for the higher share base. This will also be helped by a full 12-month consolidation of Kencana Petroleum results post-merger with SapuraCrest, and new assets like the KM2 rig and Sapura3500 derrick pipe lay barge.
To briefly recap the deal, SAKP will be purchasing Seadrill Tender Rigs Limited (STRL) for at an enterprise value of US$2.9bil (RM8.97bil). STRL has six semi-submersible tender rigs, nine tender barges and three oncoming new builds.
These rigs will raise SAKP’s orderbook to RM18.2bil from RM13.6bil currently and offer improved earnings visibility as some of the rigs are committed on long term contracts extending up to 2019.
As we had reported last week, SAKP could be seeing more good news soon if it secure a second tender from Petrobras which could be worth up to RM7bil.
Besides this, the group is also pursuing the Pan Malaysian installation and/or hook-up and commissioning long term contract and other fabrication works in Malaysia and the region.
Total tenderbook of the group is estimated at up to RM15bil.
We continue to be positive on SAKP, maintaining our strong “buy” recommendation, given a strong four-year earnings per share (EPS) compounded annual growth rate of 43% which is underpinned by rigs to be purchased from Seadrill, RM18.2bil orderbook, and also new Petrobras assets which will commence operations in financial year 2015 onwards.
Our target price for SAKP is RM3.86 and is based on financial year 2014 EPS pegging a 20 times industry average peak cycle price-to-earnings (P/E).
We highlight that SAKP’s FY14 P/E valuation of 15.8 times is more compelling than large cap peers Bumi Armada and MMHE which are trading at more than 20 times. A COMPARISON of loan-to-deposit ratios (LDR) shows that banks in Indonesia, such as Bank Negara Indonesia, Bank Jabar Banten and Bank Mandiri, have significant room for growth. Investors should adopt a selective stock picking approach after the huge rallies in Thailand and Indonesia.
We see value in Bank Negara Indonesia, Bangkok Bank, Public Bank and OCBC due to their lowerthan-peers’ LDRs and attractive fundamentals. Maintain “overweight” on Asean banks.
Banks with low LDR have spare lending capacity and will benefit more should loan growth accelerate in second half of 2013. We have ranked Asean bank by LDRs at end2013.
Indonesian banks, such as Bank Negara Indonesia, Bank Jabar Banten and Bank Mandiri, came out on top with the lowest LDRs.
Bangkok Bank also stands out as having the lowest LDR among Thai banks.
On a regional basis, Indonesia remains the fastest-growing market with loan growth of 23.1% year-onyear.
Thailand also offers stable loan growth of 13.6%. We see a mild pickup for loan growth in Singapore driven by loans to businesses.
We see investors maintaining their optimism towards Asean countries. Domestic economies should remain resilient. Inflow of foreign direct investments (FDI) and commencement of infrastructure projects will benefit Thailand and Indonesia. Asean banks are proxies to the brighter economic outlook for second half of 2013. We expect banks’ share prices to rise with bouts of liquidity hitting the stock market from time to time.
Thailand and Indonesia have outperformed, gaining 10.9% and 25.1% respectively on a year-to-date basis.
Investors should adopt a selective stock picking approach going forward instead of focusing on country selection.
Our top buy calls for large-cap banks are DBS and OCBC for Singapore, Maybank and Public Bank for Malaysia, Kasikorn Bank and Bangkok Bank for Thailand and Bank Mandiri and Bank Negara Indonesia for Indonesia.
Bank Negara Indonesia has the lowest LDR of 77.5% among largecap banks with the exception of Bank Central Asia Tbk (68.6%). Management has guided for a loan growth of 23-25% for 2013 and aims to increase savings deposits by 1921% by providing cash management and transactional services.
Bangkok Bank has the lowest LDR of 87% among Thai banks. Being the dominant corporate bank, Bangkok Bank will benefit from massive infrastructure investments including the 350 billion baht water management project that will kick-start this year.
Public Bank has a lower LDR of 87.1% compared with Maybank’s 89.8%. Management has guided for a loan growth of 11-12% for 2013. It deserves its premium ratings due to high return on equity of 21.7%, which is supported by its ultra low cost-toincome ratio of 30.2%.
OCBC’s LDR has eased slightly from 90.2% in second quarter of 2011 to the current 87.2%. OCBC is a conservative bank with rock-solid balance sheet and pristine asset quality. Management will focus on expanding in Indonesia and Greater China.