Stock Name: EPIC
Company Name: EASTERN PACIFIC IND. CORP
Eastern Pacific Industrial Corp Bhd
(Aug 1, RM2.95)
Maintain hold at RM2.80 with revised target price of RM2.70 (from RM2.55): EPIC's 1H11 results, expected to be released in mid-August, are projected to be stronger year-on-year (y-o-y) with earnings growth of 10% to 12%. A five sen interim dividend (+100% y-o-y) could be declared as we estimate EPIC has about RM100 million cash on its balance sheet (60 sen per share) and should enjoy solid cash flows. We maintain our 'hold' call but nudge up our target price to RM2.70 (+6%) as we roll forward our valuation basis to 2012 with an unchanged eight times price-earnings ratio (PER).
We forecast EPIC's 2Q11 net profit to be in the range of RM16 million to RM17 million (+47% to 56% quarter-on-quarter), on stronger top line growth (+14% to 15% q-o-q) and pretax margins (+8 to 9 percentage points q-o-q). This would take 1H11 earnings to RM27 million to RM28 million (+10% to 14% y-o-y) in-line with our full-year forecast of RM55 million. The strong q-o-q earnings growth was accentuated by a weaker 1Q. We also understand EPIC continues to benefit from stronger oil and gas (O&G) activities at its petroleum supply base (KSB) and fabrication outfit (Mushtari).
EPIC's share price surged 12% after Ahmad Zaki Resources Bhd (AZRB) announced the completion of its 21.6% stake sale in EPIC to Lembaga Tabung Amanah Warisan Negeri Terengganu (LTAWNT) on June 10. Although cash payment of RM111.5 million or RM3.10 per share has been made, the share transfer has not been effected, reviving speculation of a mandatory general offer (MGO) to be triggered at RM3.10, upon the eventual transfer. LTAWNT is a unit of Terengganu Inc, an existing 40% shareholder of EPIC.
Under the Capital Markets and Services Act 2007 (S.219) and Take-overs Code 2010 (PN15.2), the Securities Commission may grant an exemption from a MGO if an application is submitted before a transfer is executed. We do not think it unreasonable to believe that the 8.5 month wait since the stake sale was announced on Nov 8, 2010 could be to facilitate such an application for exemption. We understand that during the 2009 takeover, TI had obtained a waiver from the SC.
EPIC's prospective PER and price-to-book valuations of 8.2 times and 1.1 times FY12 still leave EPIC the cheapest O&G stock in our coverage universe. However, its long-term prospects remain clouded, in our view, by the Tanjong Agas operations in Pahang, which could cannibalise its activities in 2014/15. On that uncertainty, EPIC's valuations are fair. ' Maybank IB Research, Aug 1
This article appeared in The Edge Financial Daily, August 2, 2011.
Company Name: EASTERN PACIFIC IND. CORP
| Research House: MAYBANK | Price Call: HOLD | Target Price: 2.70 |
Eastern Pacific Industrial Corp Bhd
(Aug 1, RM2.95)
Maintain hold at RM2.80 with revised target price of RM2.70 (from RM2.55): EPIC's 1H11 results, expected to be released in mid-August, are projected to be stronger year-on-year (y-o-y) with earnings growth of 10% to 12%. A five sen interim dividend (+100% y-o-y) could be declared as we estimate EPIC has about RM100 million cash on its balance sheet (60 sen per share) and should enjoy solid cash flows. We maintain our 'hold' call but nudge up our target price to RM2.70 (+6%) as we roll forward our valuation basis to 2012 with an unchanged eight times price-earnings ratio (PER).
We forecast EPIC's 2Q11 net profit to be in the range of RM16 million to RM17 million (+47% to 56% quarter-on-quarter), on stronger top line growth (+14% to 15% q-o-q) and pretax margins (+8 to 9 percentage points q-o-q). This would take 1H11 earnings to RM27 million to RM28 million (+10% to 14% y-o-y) in-line with our full-year forecast of RM55 million. The strong q-o-q earnings growth was accentuated by a weaker 1Q. We also understand EPIC continues to benefit from stronger oil and gas (O&G) activities at its petroleum supply base (KSB) and fabrication outfit (Mushtari).
EPIC's share price surged 12% after Ahmad Zaki Resources Bhd (AZRB) announced the completion of its 21.6% stake sale in EPIC to Lembaga Tabung Amanah Warisan Negeri Terengganu (LTAWNT) on June 10. Although cash payment of RM111.5 million or RM3.10 per share has been made, the share transfer has not been effected, reviving speculation of a mandatory general offer (MGO) to be triggered at RM3.10, upon the eventual transfer. LTAWNT is a unit of Terengganu Inc, an existing 40% shareholder of EPIC.
Under the Capital Markets and Services Act 2007 (S.219) and Take-overs Code 2010 (PN15.2), the Securities Commission may grant an exemption from a MGO if an application is submitted before a transfer is executed. We do not think it unreasonable to believe that the 8.5 month wait since the stake sale was announced on Nov 8, 2010 could be to facilitate such an application for exemption. We understand that during the 2009 takeover, TI had obtained a waiver from the SC.
EPIC's prospective PER and price-to-book valuations of 8.2 times and 1.1 times FY12 still leave EPIC the cheapest O&G stock in our coverage universe. However, its long-term prospects remain clouded, in our view, by the Tanjong Agas operations in Pahang, which could cannibalise its activities in 2014/15. On that uncertainty, EPIC's valuations are fair. ' Maybank IB Research, Aug 1
This article appeared in The Edge Financial Daily, August 2, 2011.
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