Time to enter SKPetro?

Today’s headlines: Seadrill exits company by selling 8.2% stake for $195 million

KUALA LUMPUR (NewsRise) –Bermuda-based deep-water drilling contractor Seadrill said it has sold its entire stake in Malaysia’s largest oil and gas service provider SapuraKencana Petroleum for $195 million.

Seadrill sold its remaining 490 million shares, equivalent to 8.2% stake in SapuraKencana, and proceeds from the share sale will provide “additional liquidity” and funds for “general corporate purposes,” the company said in a brief statement on its website.

 The exit of Seadrill, widely-seen as a strategic partner of SapuraKencana, may dent investor sentiment in the short-term though the move was driven mostly by Seadrill’s need to secure cash to service debt amid persistent weakness in the oil and gas sector, analysts said.

“The sale of SapuraKencana shares near the historical low is not entirely surprising given Seadrill is facing pressure to conserve cash,” said Kenanga Investment Bank analyst Sean Lim. “We gather that the transaction is done” at 1.58 ringgit apiece, a discount of 10.7% to the last traded price of 1.77 ringgit.

Seadrill was SapuraKencana’s second-largest shareholder with more than 12% stake when it was listed in 2012 following the merger of SapuraCrest Petroleum and Kencana Petroleum. Seadrill had halved its stake shortly after SapuraKencana’s listing.

A year later, the two companies moved to combine their tender rig businesses in an 8.78 billion ringgit exercise, expanding SapuraKencana’s presence further to Angola, Equatorial Guinea, Trinidad and Tobago. Seadrill last sold 3.8% stake in SapuraKencana in 2014.

The rapid decline in oil prices since mid-2014 however prompted the world’s oil majors to scale back or halt expansion of their exploration and production activities, weighing on demand for services of SapuraKencana and Seadrill.

“Seadrill has a huge accumulation of borrowings and poor cashflow backlog, given the need to sustain debt obligations [amid] persistent weakness in the rig chartering industry,” UOB Kay Hian said in an investors note.

By June, Seadrill would need to restructure loans and bonds worth $11 billion. “Therefore, it is not surprising that it has to dispose of its investments in SapuraKencana, even if the disposal values fall below the blended costs of investment,” the brokerage said.

Though Brent, the global benchmark for crude oil prices, has risen 27% so far this year, prices were still over 60% lower than its peak in June 2014. 

http://asia.nikkei.com/Business/AC/Seadrill-exits-company-by-selling-8.2-stake-for-195-million

 

With this new development, SKPetro dropped 7.34% to RM1.64, dragging FBMKLCI index as well. However, it is the right time to enter into SKPetro?

Performed an updated statistical analysis to assess the relationship between the share price of SKPetro and movements in Brent Crude Oil:

SKPetro_ModelResults_28042016.png

Based on the above relationship, let’s do a quick comparison between the actual and forecast share price of SKPetro:

SKpetro_forecastvsactual_apr2016.png

At brent crude price of USD47.34 (as of 28 Apr 2016), the current share price of SKPetro (RM1.64) appears relatively undervalued if compared to its forecast share price of RM2.2054, with a 95%-confidence interval range of between RM0.9160 –   RM3.4948

What are analysts’ current target price for SKPetro?

Date Open Price Target Price Price Call Source
28/04/2016 1.63 1.93 HOLD KENANGA
28/03/2016 1.89 1.88 SELL TA
28/03/2016 1.89 2.42 BUY RHB-OSK
28/03/2016 1.89 2.72 BUY MIDF
28/03/2016 1.89 1.93 HOLD KENANGA
28/03/2016 1.89 2.75 BUY JF APEX
28/03/2016 1.89 1.81 SELL HLG
22/02/2016 1.94 2.38 BUY KENANGA
11/02/2016 1.77 1.80 HOLD MACQUARIE GROUP
05/02/2016 1.85 1.65 SELL TA

Despite the analysis above, we should wait for SKPetro’s next quarterly result whether there is any further impairment in the assets of this company.

 

 

DISCLAIMER: THIS SITE IS FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.

Year 2023

Today, the FBMKLCI  dropped below the crucial threshold of 1,700 points due to prevailing negative sentiments surrounding the default of Government-linked investment fund, 1MDB in paying its interest due. Ringgit closed lower too. There is simply too much volatility in the current investing environment. Personally, I foresee that the volatility will continue to increase over the next 1-2 years in view of growing uncertainties with domestic and international front. Nevertheless, we can’t stop investing because of fear. We should always take a longer term view when comes to investing. One such instrument that may be considered by investors for the purpose of long term investing is the call warrant issued by Malaysian-listed BIMB Holdings Berhad. This long-dated call warrant will expire in the year of 2023 and some of its terms are summarised as follows:

Exercise Price (MYR) 4.7200 Implied Gearing a 7.647 Conversion Ratio 1 Share : 1 Warrant(s)
Premium (%) 32.115 Simple Gearing 11.265 Expiry Date b (Countdown) 04 Dec 2023 (2,777 days)
Outstanding Warrants c 426,715,878 Underlying (Price) BIMB (3.830)
Exchange Code 5258WA.MY ISIN Code MYL5258WAXC6

Let’s do a quick desktop analysis to assess whether BIMB’s warrants (“BIMB-W”) are relatively overvalued or undervalued. A simple regression analysis is performed between the price of BIMB-W and its mother share, BIMB:

BIMBW-model.png

Based on the above statistical relationship:

Const -1.74
BIMB 0.54640
-25% -20% -15% -10% 0% 10% 15% 20% 25%
BIMB 2.87 3.06 3.26 3.45 3.83 4.21 4.40 4.60 4.79
BIMB-W (forecast) 0.00 0.00 0.04 0.15 0.36 0.56 0.67 0.77 0.88
BIMB-W (actual) – 26 April 2016 0.34

BIMBW_forecast.png

Currently, BIMB-W appears to be fairly valued with a forecast value of RM0.36 against actual value of RM0.34. The 95%-confidence interval for forecast value of BIMB-W is between 0.160 and 0.552.

From a different perspective, this desktop analysis shows that that when BIMB (mother share) ever reaches RM3.18, the value of BIMB-W is expected to approximate zero or in another word, the capping warrant premium for BIMB-W is 48.2% (based on the exercise price of RM4.72). We should expect BIMB-W to reverse downward when its warrant premium approximates 48.2%.

The good thing about using longer-dated warrants (or options) is that the value will not be impacted significantly by its time decay property.

What are analysts’ current target price on BIMB?

Date Open Price Target Price Price Call Source
25/03/2016 3.75 4.10 HOLD RHB-OSK
08/03/2016 3.65 3.68 HOLD ALLIANCE
03/03/2016 3.69 4.10 BUY RHB-OSK
03/03/2016 3.69 4.22 BUY MIDF
03/03/2016 3.69 3.90 HOLD MAYBANK
03/03/2016 3.69 4.30 HOLD KENANGA
03/03/2016 3.69 3.85 HOLD ALLIANCE
01/03/2016 3.60 4.22 BUY MIDF
29/02/2016 3.57 3.90 HOLD MAYBANK
29/02/2016 3.57 4.07 HOLD KENANGA

 

 

 

 

DISCLAIMER: THIS SITE IS FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.

The Irrational Market (Part 2)

Despite negative economic data / news, Malaysia’s FBMKLCI continues its climb, breaching its historical high price-to-earnings PE of 18x.
  

It was not the fundamentals that drove the increase in the index but for the inflow of foreign funds resulting from a delay in US rate hikes as well as negative yield global environment.

Deep inside, there are inherent problems associated with Malaysia. Slowing economy, rising unemployment, rising household debt & non-performing loans, etc. 
What happen next: wait for May, when most ListCos will report their Q1 results. Expect to see a deepening crisis in the making….

DISCLAIMER: THIS SITE IS FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.

Betting On Indonesia

Indonesia does present growth opportunities, given the sheer size of its population. If I would ever invest in Indonesia, it will be in its consumer sector. One such potential counter in this sector is PT Fast Food Indonesia Tbk.

PT Fast Food Indonesia Tbk engages in the food and restaurant business. The firm is the franchise holder of KFC brand in Indonesia. It operates through the following segments: Jakarta Restaurant Support Center (RSC), Medan RSC, Makassar RSC, Palembang RSC, Bandung RSC, and Others RSC. Its products are grouped into categories such as Menu Goceng, Menu Praktis, and Package Meals. Menu Goceng includes food items such as Mocha Float, and Burger Deluxe. Menu Praktis offers food items that are easy to take away or consumed along the way such as Colonel Burger, Twister, Colonel Yakiniku, and Fish Fillet. Package Meals provides meal saving combinations such as Super Panas, KFC Attack, and Super Mantap. The company was founded on June 19, 1978 and is headquartered in Jakarta, Indonesia.

FastFood_GP

What happen to its share price: Peaked at close to 3,500 (Jul 13) and has since descended to about 1,065 (1 Apr 2016). One wonders what could have possibly caused such dramatic decline over this period. Coincidentally, we also saw the sharp depreciation in the Indonesian Rupiah since mid July 2013 as well.

Rupiah Graph.png

Without conducting a detailed fundamental analysis as well as macro analysis on Indonesia, let’s explore the relationship between the share price of Fast Food and IDR.

A simple regression analysis was performed using historical data (since 1 Jan 2012) and the results of our analysis are summarised as follows:

 

Model Fast Food.png

Based on the above results, the statistical results appear significant. The relationship is defined as : Share Price (IDR) of Fast Food = 6,498.40 -0.374273 (Exchange rate in IDR/USD)

Comparison between actual share price of Fast Food vs predicted share price (based on the above formula):

FastFood_PredictedvsActual.png

The above graph shows that the actual share price does not significantly deviate from its predicted share price. Currently, it appears that there is potential upside as Fast Food’s last traded price (IDR1,065) is relatively lower than (i) its predicted share price as well as (ii) below 95% confidence interval’s lower bound. At current exchange rate of IDR/USD of 13,137, the predicted share price of Fast Food is IDR1,581 whilst the 95% confidence interval range is between IDR1,143 and IDR2,019.

What about the Indonesian Economy & Rupiah? Can it potentially go lower?

The Indonesian economy is poised to return to a gradual growth path after five years of decelerating growth.The Asian Development Bank (ADB) on Wednesday (Mar 30) projected Southeast Asia’s largest economy to grow by 5.2 per cent in 2016 – up from 4.8 per cent in 2015. http://www.channelnewsasia.com/news/business/indonesia-economy-poised/2649240.html

Macquarie, the second-most accurate forecaster for emerging-market Asian currencies in the latest Bloomberg rankings, strengthened its end-June projection for the rupiah to 12,600 a dollar this month, implying a 6.3 per cent gain from Tuesday’s close of 13,400. The window could be closing for Indonesian shoppers though, with the median estimate of analysts surveyed by Bloomberg showing a drop to 13,950 by the end of the year. Read more: http://www.afr.com/markets/currencies/indonesias-rupiah-has-room-to-rise-still-higher-20160329-gntok3#ixzz44gWGSlrz

 

DISCLAIMER: THIS SITE IS FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.