Wednesday, July 14, 2010

Do You Think Scomi Marine Is Doing A Fire Sale?

On Star Business: Scomi Marine may make capital repayment

  • Wednesday July 14, 2010
    Scomi Marine may make capital repayment

    Firm also looking at expanding Indonesian coal shipping business

    KUALA LUMPUR: Scomi Marine Bhd may undertake a capital repayment exercise following the
    huge gains made from the disposal of its Indonesian coal shipping assets, which boosted its net cash to RM552mil.
    The company, however, is also looking at other options which include investing in larger vessels to expand its coal shipping business in Indonesia beyond South-East Asia or an entirely new business direction, said a source.

    “Upon the completion of the disposal, the board will have an action plan,” said the source...

So said the source. :D

Love the title too... 'may'.

Hmmm... if this source is credible, then I wonder what is the following statement is all about?

  • huge gains made from the disposal of its Indonesian coal shipping assets, which boosted its net cash to RM552mil.

Huge gains? Again here is Scomi Marine's own announcement on Bursa Website. Announcement (FINAL).pdf

Scomi Marine's own words was SMB will realise a loss on disposal of about rm433 million.

Boosted net cash to rm522 mil?

Hmm... the article on today Star also said the following...

  • Scomi Marine has a debt of RM70.8mil after disposing its marine logistics business. After paying that off, the company would have a sizeable hoard to pursue new opportunities, which might include the purchase of panamax for shipping coal to countries such as China or India where demand for that commodity is on the rise.

Ok.. the marine logistics was sold for 348.7 million. As per Scomi Marine's quarterly earnings on May 2010: Quarterly rpt on consolidated results for the financial period ended 31/3/2010. Scomi Marine has cash equivalents of 74.4 million and debts and debts of over 486.490 million.

Now the 348.7 million is not IN yet. But if I add it up, it should be a net debt of 63.3 million. As per Scomi Marine own statement, yesterday sale proposal was RM549.330 million. Which means, Scomi Marine could be in a potential net cash of 486.03 million. Which is slighlty off from the rm 522 million stated. ( Ah... but ... but... what's the big deal.. since it's only off slightly. :P )

Anyway... in the posting And what about Scomi Marine The Share? , I received one set of good questions... which I have no answers. :D

  • solomon said...
    Moolah, is this a fire sales as if it sound like RM983million asset now selling for RM550 million?

    Or the other way round, another old trick by Investment Bankers to transfer asset?

    Do u see any reason to sell if the company profit is showing upward trends?

Yes, is this a fire sale?

And Scomi Marine is in a hurry to dispose these assets. Why?

And why at a lost?

And yes if theses companies were making good money, why sell at a lost?

And.... if this is not a fire sale... then why?

Tell me why.

Back on Feb 2010, the disposal of its marine logistics business for rm348.7 million. The following is the announcement posted on Bursa website. SMB Announcement - Disposal of CHO.pdf

Page 6 is most interesting or baffling for me. (Perhaps I cannot under stand too much :P )

  • CHO owns and operates vessels to support and service the offshore oil and gas industry mainly in Indonesia, Australia, Latin American and Middle East. Its offshore support services are involved in various phases of offshore exploration, development and production activities. These services include towing and anchor handling of drilling rigs, transportation of supplies and personnel, and supporting other offshore activities.

    The issued capital of CHO as at 29 January 2010 is SGD95,251,166.

    For the financial year ended 30 June 2009, CHO registered an audited consolidated profit after tax of USD56.2 million and its audited net assets as at 30 June 2009 is USD187.4 million.

Now the disposal of CHO will result in a net gain of RM63.6 million to SMB Group. (page 7)

But CHO disposal price consideration stated is SGD143.5million or RM348.7 million.

CHO made USD56.2 million for its fiscal year 2009. Based on an exchange rate of 3.2, this works out to rm 179.8 million in earnings.

If CHO can make USD56.2 million or rm179.8 million in a year, how and why is Scomi Marine selling this ASSet for only rm348.7 million? Hehe... don't jump the gun. :P

Scomi Marine doesn't owned CHO completely. It owns only 29.07% of CHO and this 29.07% stake was sold for rm348.7 million.

Is the sale too cheap based on earnings?

Let's see if my calculations are flawed.

29% share of the 179.8million profit would equal to some 53.58 million.

So let me think about it... say I have rm348.7 million in hand and I want to make rm53.58 million... I have to seek an investment giving me a return of investment of 15.3%!

Is it easy to find such a return of investment? (ps: in 2007, CHO earned USD 40 million. Two years later, in 2009, CHO earned 56 million. Nice growth eh? )

If not, why sell so cheaply?

I guess I am wrong because the minority shareholders HAD already approved the disposal of CHO in April 2010.

Yeah, some would ask was that NOT a fire sale.

Here's the link to Scomi Marine's disposal of ASSet announcement again: Announcement (FINAL).pdf

I am sorry but I don't see the earnings track record of those 5 companies being sold.

Now considering the fact that those 5 companies (CH Logistics Ltd, CH Ship Management Pte Ltd, Goldship Pte Ltd, Sea Master Pte Ltd and PT Batuah Abadi Lines) are being disposed for a loss of rm 433 million, don't you think Scomi Marine should at least provide the investing public the financial track record of these 5 companies?


Is it wrong to think that this is a fire sale?


Moolah said...

On the Edge..

Scomi to be cash rich from exercise
Written by Financial Daily
Wednesday, 14 July 2010 10:47

Scomi Group Bhd
(July 13, 41 sen)
Maintain buy at 40 sen with fair value of 76 sen: Scomi Group Bhd’s (SGB) associate company, Scomi Marine Bhd (SMB), has entered into heads of agreement (HOA) with PT Rig Tenders (PTRT), an 84%-owned subsidiary of SMB, and Port Offshore Inc (POI) to dispose of its marine logistics business to POI for US$172 million (RM550 million). The acquisition will be funded through US$100 million in bank borrowings and a US$72 million rights issue.

After this sale, PTRT will no longer be a subsidiary of Scomi Marine. It will be a 24.75%-owned associate of the group and POI will become the major shareholder of PTRT.

We are positive on this disposal mainly because of the introduction of a cabotage law in Indonesia which will come into effect end-2010, which will pose more challenges to SMB. The cabotage rule requires vessels to be at least 51%-owned by an Indonesian party. With this rule in place, SMB’s earnings could be at risk with contracts hard to come by and less favourable rates.

However, SMB is keen to remain a partner to try to capture the upside potential of the strong Indonesian market. It believes that POI, given its financial strength and operational background, will be able to enhance its marine logistics business.

But we feel that SMB should have disposed of its entire stake in PTRT rather than remaining as a minority partner where earnings risk remains. This would have made more cash available to the group as well.

From this disposal, SMB will make losses of RM433 million (including forex losses of RM100 million). Admittedly, there will be some impact to our SGB estimates, but we are maintaining our estimates as the deal is in the preliminary stages.

The silver lining to this exercise is that SMB will be cash rich — RM552 million (about 75 sen per share) will be available to the company.

Management has not decided on to how to use this cash, but it did indicate the possibility of purchasing more offshore support vessels, injecting/acquiring a marine-related business or returning cash to the shareholders.

Elsewhere, we gather that there are more tenders for transport jobs in Brazil for the preparation of the 2014 FIFA World Cup, although decision-making remains rather slow. The group is also interested in getting a slice of the Kuala Lumpur MRT job via M&E works, given the sheer size of the project.

We maintain our buy rating on Scomi Group with an unchanged fair value of 76 sen, pegging a PER of 12 times. — AmResearch, July 13

This article appeared in The Edge Financial Daily, July 14, 2010.

Article source