UMW Holdings Bhd (Dec 21, RM6.50)
Maintain underperform with fair value of RM5.80: UMW’s 60%-owned subsidiary Synergistic Generation Sdn Bhd (SGSB) has entered into a contract with Petronas Carigali Iraq (PCI) for the procurement of materials and equipment and installation and commissioning of all equipment and facilities by SGSB for the setting up of the Garraf Power Plant Phase I for Garraf Field, Republic of Iraq, at a contract value of US$29.7 million (RM94.1 million).
PCI is engaged in the development of the Garraf Contract Area, Republic of Iraq, and the operator of the Garraf Field. The contract is for 55 months from Sept 8 with an option by PCI to extend for another 12 months.
UMW’s 22.3% associate WSP Holdings Ltd also recently announced that its board had formed a special committee after receiving a non-binding proposal letter from HDS Investments to acquire all the shares in WSP in a possible going-private transaction.
HDS has had preliminary and informal communications with Expert Master Holdings (EMH, wholly-owned by Piao Longhua, WSP’s chairman, CEO and majority shareholder with a 50.9% stake) and believes that EMH and certain other significant shareholders would be interested in pursuing a transaction where a HDS special purpose vehicle would acquire all the publicly held shares of WSP for US$0.60 cash and exchange shares in the HDS SPV for shares held by EMH and certain other significant shareholders.
WSP has been incurring losses after Chinese pipe manufacturers were hit by anti-dumping and countervailing duties by the US in 2010. WSP is expected to break even by 2Q12 and we are forecasting a small profit for 2012.
It is unclear if UMW will opt for the cash or share swap option although it will probably realise a loss on its investment in WSP if it accepts US$0.60 cash (we are unable to ascertain UMW’s carrying cost of WSP).
UMW could be better off holding on to WSP given the improved outlook helped by its new facilities in Houston (100,000 tonnes per annum) and Rayong, Thailand (200,000 tonnes per annum) that have just commenced trial production.
We are leaving our forecasts unchanged.
Risks: 1) Stronger economy boosting car sales, 2) Favourable forex trends and 3) Reduced competition.
No change to our “underperform” recommendation on valuation grounds. Our sum-of-parts derived fair value estimate is RM5.80. The recent strength of the US dollar remains a worry although a higher dividend payout could keep investor interest up. — RHB Research, Dec 21
This article appeared in The Edge Financial Daily, December 22, 2011.
Maintain underperform with fair value of RM5.80: UMW’s 60%-owned subsidiary Synergistic Generation Sdn Bhd (SGSB) has entered into a contract with Petronas Carigali Iraq (PCI) for the procurement of materials and equipment and installation and commissioning of all equipment and facilities by SGSB for the setting up of the Garraf Power Plant Phase I for Garraf Field, Republic of Iraq, at a contract value of US$29.7 million (RM94.1 million).
PCI is engaged in the development of the Garraf Contract Area, Republic of Iraq, and the operator of the Garraf Field. The contract is for 55 months from Sept 8 with an option by PCI to extend for another 12 months.
UMW’s 22.3% associate WSP Holdings Ltd also recently announced that its board had formed a special committee after receiving a non-binding proposal letter from HDS Investments to acquire all the shares in WSP in a possible going-private transaction.
HDS has had preliminary and informal communications with Expert Master Holdings (EMH, wholly-owned by Piao Longhua, WSP’s chairman, CEO and majority shareholder with a 50.9% stake) and believes that EMH and certain other significant shareholders would be interested in pursuing a transaction where a HDS special purpose vehicle would acquire all the publicly held shares of WSP for US$0.60 cash and exchange shares in the HDS SPV for shares held by EMH and certain other significant shareholders.
WSP has been incurring losses after Chinese pipe manufacturers were hit by anti-dumping and countervailing duties by the US in 2010. WSP is expected to break even by 2Q12 and we are forecasting a small profit for 2012.
It is unclear if UMW will opt for the cash or share swap option although it will probably realise a loss on its investment in WSP if it accepts US$0.60 cash (we are unable to ascertain UMW’s carrying cost of WSP).
UMW could be better off holding on to WSP given the improved outlook helped by its new facilities in Houston (100,000 tonnes per annum) and Rayong, Thailand (200,000 tonnes per annum) that have just commenced trial production.
We are leaving our forecasts unchanged.
Risks: 1) Stronger economy boosting car sales, 2) Favourable forex trends and 3) Reduced competition.
No change to our “underperform” recommendation on valuation grounds. Our sum-of-parts derived fair value estimate is RM5.80. The recent strength of the US dollar remains a worry although a higher dividend payout could keep investor interest up. — RHB Research, Dec 21
This article appeared in The Edge Financial Daily, December 22, 2011.
