Swissco
share price surge 20% over the last two trading days to a high of S$0.50. In
the past one year, the company share price has increased from a low of 0.22 to
0.50. That is a whopping 130% increase!
share price surge 20% over the last two trading days to a high of S$0.50. In
the past one year, the company share price has increased from a low of 0.22 to
0.50. That is a whopping 130% increase!
While
reasons of price spike are not explicitly known, it may be related to the
coming EGM
on 22 July held mainly to approve on (1) Consolidation of shares 2 to 1. (2)
Acquisitions of entire share capital of Scott and English Energy (S&E).
reasons of price spike are not explicitly known, it may be related to the
coming EGM
on 22 July held mainly to approve on (1) Consolidation of shares 2 to 1. (2)
Acquisitions of entire share capital of Scott and English Energy (S&E).
Scott & English (S&E)
S&E
is owned by Kim Seng Holdings (KSH) controlled by Tan Kim Seng, the founder of
KS Energy. KSH is also the major shareholder of Swissco at 18.1% currently.
is owned by Kim Seng Holdings (KSH) controlled by Tan Kim Seng, the founder of
KS Energy. KSH is also the major shareholder of Swissco at 18.1% currently.
S&E
owns and operates a fleet of four service rigs via a 50/50 JV with Ezion. Three
of the Rigs were for Pemex in the Gulf of Mexico and one is for Saudi Aramco in
Middle East. The estimated aggregate charter contract value of these Rigs is approx.
US$495.7m. These contracts are backed by long-term bareboat charters of four to
seven years from 2013, with a total annual net profit of S$20-23m. From a
report by CIMB in Apr this year, it shows that the fleet of four service rigs
could generate strong FCFE of S$14-16m and can be potentially used to fund
future fleet expansion. Refer to my post
owns and operates a fleet of four service rigs via a 50/50 JV with Ezion. Three
of the Rigs were for Pemex in the Gulf of Mexico and one is for Saudi Aramco in
Middle East. The estimated aggregate charter contract value of these Rigs is approx.
US$495.7m. These contracts are backed by long-term bareboat charters of four to
seven years from 2013, with a total annual net profit of S$20-23m. From a
report by CIMB in Apr this year, it shows that the fleet of four service rigs
could generate strong FCFE of S$14-16m and can be potentially used to fund
future fleet expansion. Refer to my post
The
competitors of S&E are Ezion, KS Energy, Mermaid Maritime Public Co Ltd
etc. Of course Ezion is a partner of Swissco, and similarly future partnerships can be
established among competitors for win-win business strategies.
competitors of S&E are Ezion, KS Energy, Mermaid Maritime Public Co Ltd
etc. Of course Ezion is a partner of Swissco, and similarly future partnerships can be
established among competitors for win-win business strategies.
Acquisition of S&E and Share Consolidation
The
proposed acquisition of S&E from KSH is for S$285mil a 1.4% discount to its
valued price. The net profit of S&E is 19.4mil for FY2013 with a NTA of
S$54.4mil. This translate to a PER of 14.7 times and a P/NTA of 5.2 times.
proposed acquisition of S&E from KSH is for S$285mil a 1.4% discount to its
valued price. The net profit of S&E is 19.4mil for FY2013 with a NTA of
S$54.4mil. This translate to a PER of 14.7 times and a P/NTA of 5.2 times.
The
proposed acquisition is to be satisfied by the issuance of 452.4mil of Swissco
shares at S$0.630 per piece. After the acquisition, the group profits will
increase from S$23.1 to S$39.4mil with a weighted average number of shares
increases from 218 to 670mil. KSH and its associates will then have a combined
stake of 63.9% share capital.
proposed acquisition is to be satisfied by the issuance of 452.4mil of Swissco
shares at S$0.630 per piece. After the acquisition, the group profits will
increase from S$23.1 to S$39.4mil with a weighted average number of shares
increases from 218 to 670mil. KSH and its associates will then have a combined
stake of 63.9% share capital.
The
basis of the acquisition is simple. It represents an opportunity for the Group
to penetrate the Rig business and diversify group’s earnings from its existing
OSV business. The rationale for share consolidation is to have a higher trading
price. This will then increase the profile of the company amongst institutional
investors for capital raising purposes and also provide a more diverse
shareholder base.
basis of the acquisition is simple. It represents an opportunity for the Group
to penetrate the Rig business and diversify group’s earnings from its existing
OSV business. The rationale for share consolidation is to have a higher trading
price. This will then increase the profile of the company amongst institutional
investors for capital raising purposes and also provide a more diverse
shareholder base.
Without doubt, there is inherent risk from the acquisition. Rig business is much more
complicated than tugs, barges and OSVs, with higher associated risks and costs. Moreover, Swissco
has no prior experience in S&E business and there can be no guarantee that
the Rigs owned are able to secure future contracts. The business is very much
dependent on the global demand and supply dynamics of rigs.
complicated than tugs, barges and OSVs, with higher associated risks and costs. Moreover, Swissco
has no prior experience in S&E business and there can be no guarantee that
the Rigs owned are able to secure future contracts. The business is very much
dependent on the global demand and supply dynamics of rigs.
Dilution of Shares
While the proposed acquisition seems all positive, it will result in immediate dilution of share capital. Refer to table below. We can see that after the acquisition, the share price is diluted from S$1.00 to S$0.75.
Going
forward, the enlarged group may also require more funding in order to grow and
expand its operations. This may result in further fund raising through shares
issuance, resulting in more dilution of shares.
forward, the enlarged group may also require more funding in order to grow and
expand its operations. This may result in further fund raising through shares
issuance, resulting in more dilution of shares.
Termination of Acquisition of Property
Swissco
also announced acquisition of a property at 21 Tuas Road was cancelled with no
reasons provided. The company is taking all necessary actions to recover the
money paid under the option of purchase. The waterfront property is supposed to
cost Swissco S$16.2mil in order for the group to use it to docking, service and
repair in view of its growing fleets over the past years.
also announced acquisition of a property at 21 Tuas Road was cancelled with no
reasons provided. The company is taking all necessary actions to recover the
money paid under the option of purchase. The waterfront property is supposed to
cost Swissco S$16.2mil in order for the group to use it to docking, service and
repair in view of its growing fleets over the past years.
Maybe
Swissco has decided that the money should be better-spend in acquiring more
service rigs rather than more land?
Swissco has decided that the money should be better-spend in acquiring more
service rigs rather than more land?
Summary
Is Swissco
able to follow the footsteps of Ezion to tap on the robust E&P sector
successfully? Or is it already too late now with the Rig segment already
saturating? That is something left to be uncovered! If
the Rig business continues to bullish, what lies ahead for Swissco may be
startling bright. Afterall Swissco is steered by the same man “Tan Kim Seng” who also orchestrated
the success of Ezion in the last few years.
able to follow the footsteps of Ezion to tap on the robust E&P sector
successfully? Or is it already too late now with the Rig segment already
saturating? That is something left to be uncovered! If
the Rig business continues to bullish, what lies ahead for Swissco may be
startling bright. Afterall Swissco is steered by the same man “Tan Kim Seng” who also orchestrated
the success of Ezion in the last few years.
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