Analysts say UMW Holdings’ O&G offering was widely anticipated

PETALING JAYA: UMW Holdings Bhd's
move to list its oil and gas (O&G) division received lukewarm
response from the investing community, as many had been anticipating
the move for some time.
Hong Leong Investment Bank
Research, which has maintained its “sell” call on UMW Holdings, said it
believed that the initial public offering (IPO) had already been widely
anticipated and priced in, given the current implied value of the
O&G division was already at 40 times financial year 2014 (FY14)
price/earnings. It also expects Toyota sales to disappoint the market.
It
said the IPO would allow the conglomerate to realise the hidden value
of its O&G assets, improve capital structure, lower the O&G
dependency on the group in terms of borrowings and fund raising,
facilitate efficient resource allocation, and accelerate the growth of
the O&G division.
“Prior to the IPO exercise, the group
would undertake an internal reorganisation exercise (expected to be
completed by third quarter 2013), which involves the transfer of the
offshore drilling business and certain companies in the oilfield
services division under UMW Holdings to UMW Oil and Gas. The whole exercise is expected to be completed by fourth quarter 2013,” it said.
It
added that the IPO would dilute the O&G contribution to the UMW
group by 39%, as it would only own 61% of the listed UMW Oil and Gas.
Of the 16 research houses tracked by Bloomberg, nine had a “hold” call on UMW Holdings, with four calling for a “sell” and the balance three giving out a “buy” call.
Analysts
who were invited to a briefing by the company's management yesterday
said that details were still scant, as the conglomerate was still
reluctant to reveal any further details of the IPO, citing banking
procedures.
“The prospectus timeline was not revealed, and UMW
Holdings said it would submit its draft prospectus for the approval of
the Securities Commission next week,” said an analyst.
Maybank
Investment Research said while the exercise was positive in unlocking
value for the group, much would depend on the pricing of the IPO, which
was yet to be determined.
“As it stands, UMW Holdings'
valuations may already have partially factored in this move to unlock
value. At a prospective FY13 price-to-earnings ratio (PER) of 16.2
times, the group was already trading at a 24% premium to its
five-historical mean, but still below the average PER of 19 times for
the Malaysian O&G sector, this being an average 15% discount,” it
wrote.
RHB Research, meanwhile, said UMW Holdings would retain a 61% stake in UMW Oil and Gas post-IPO.
“The
listing company would only include UMW Holdings' profitable core
O&G businesses in offshore drilling and oilfield services, while
the unprofitable, non-core loss-making O&G businesses would be
retained in UMW Holdings,” it said.
It elaborated that the
profitable core O&G businesses were the drilling and oilfield
services business, where it provided offshore drilling and workover
services with its fleet of offshore drilling rigs and hydraulic
workover units, while under the oilfield services business of UMW Oil
and Gas, it offered threading, inspection and repair services for oil
country tubular goods (OCTG) in Malaysia, Thailand, China and
Turkmenistan, with a focus on premium connections used in high-end and
complex wells.
“UMW Holdings would retain other non-core O&G
business that would not form part of UMW Oil and Gas' business and
includes onshore drilling services, the manufacture of OCTG and steel
linepipes, providing anti-abrasion coating services for OCTG, repair
and fabrication of steel structures for the marine, O&G,
construction and other related industries, and the trading, stocking,
marketing and distribution of oilfield products,” it said.
The counter closed up two sen at RM14 yesterday.