Wah Seong a major oil and gas player in the making (5142)

BY outbidding other contenders for a substantial stake in Petra Energy Bhd, pipe-coating specialist Wah Seong Corp Bhd
is set to emerge as the second-largest shareholder in the integrated
oil and gas (O&G) brown field services provider once the deal is
finalised.
This will likely see Wah Seong strengthening its
position as a major player in the O&G sector that is set to boom
under Malaysia's Economic Transformation Programme (ETP).
To recap, Wah Seong announced to Bursa Malaysia last Thursday that it had, through its wholly owned subsidiary Wasco Energy Ltd (WEL), won the bid for Perdana Petroleum Bhd's entire 26.9% stake, or 57.7 million shares, in Petra Energy.
Perdana
Petroleum had been wanting to divest its entire interest in Petra
Energy due to its inability to control much of the business direction
in the latter, and had in April appointed CIMB Investment Bank Bhd to undertake a restricted tender process for the divestment of its entire block of shares in Petra Energy.
At present, Shorefield Resources Sdn Bhd
is the largest shareholder in Petra Energy with a 27.3% stake. If the
share sale went through for Wah Seong, the company, with a 26.9% stake
then, would emerge as the second-largest shareholder in Petra Energy.
Wah
Seong had earlier made known it was on a shopping spree, eyeing for a
number of O&G services companies, to tap into businesses that could
provide stable and recurring income as well as better margins to boost
earnings.
Petra Energy fits the bill, as buying into the company will enable Wah Seong to diversify its income base.
“We
understand that WEL's interest in Petra Energy is aimed at diversifying
its earnings base with an eye on long-term contracts for hook-up and
commissioning (HUC), which is Petra Energy's mainstay,” CIMB Research
analyst Norziana Mohd Inon said in her report.
“This is in view
of the demerger and eventual listing of WEL, which is mostly involved
in the pipe coating segment, where long-term contracts are not common,”
she added.
Wah Seong's order book currently stands at RM1.2bil,
of which RM727mil is from O&G segment, RM243mil from renewable
energy and RM182million from industrial trading and services.
Norziana
reckoned that by buying into Petra Energy, Wah Seong's potential
earnings enhancement would be modest at around 4% to 5% over the short
term. But with Petra Energy vying for more long-term HUC jobs and
marginal field contracts, Wah Seong's equity stake in Petra Energy will
be a long-term positive.
OSK Research analyst Jason Yap
concurred, saying “We see a synergistic partnership between the two
parties, especially in future upstream O&G developments.”
“Wah
Seong can contribute its pipe coating expertise, while Petra Energy is
a specialist in the provision of brownfield services,” he added.
Yap
also noted that Petra Energy would fit Wah Seong's business model, as
the latter had been looking at buying businesses that could provide
recurring income to replace its gas compressor business, which is
constantly challenged by stiff competition, as well as to complement
its existing one-off pipe-coating business.
Wah Seong had
earlier voiced its optimism on the outlook for the O&G sector,
stating that it expected the Government's strategy to intensify O&G
production in the country to result in more job opportunities within
the sector.
It's not surprising as the O&G is one of the 12 sectors identified as the National Key Economic Areas under the ETP.
Meanwhile,
the pricing of the block of Petra Energy share sale to Wah Seong
remains unclear at this juncture, pending execution of a definitive
agreement for the share sale between the parties involved.
Speculation has it that the stake in Petra Energy would be sold at RM1.70 per share, thus valuing the deal at RM98.1mil.
That price, according to Yap, is generally in line with industry expectations.
Petra
Energy's net assets per share stood at RM1.62 as at end-March while the
consensus target price for the counter stood at RM1.46 per share.
Last
Friday, Petra Energy shares closed four sen lower at RM1.43 while Wah
Seong shares rose five sen to RM1.90 and Perdana rose two sen to 63.5
sen.