Protasco Bhd has lodged a police report against  two  of  its  directors,  namely  Tey Por  Yee  and  Ooi  Kock  Aun,  over  the aborted  oil  and  gas  deal  in  Indonesianbased PT Anglo Slavic Utama (PT ASU). The proposed deal lapsed as conditions to  the  restated  SPA  were  not  fulfilled within the stipulated timeframe.

Comments

Recall  earlier  on  22nd  September  2014 that  Protasco  has  filed  a  legal  suit against  the  two  directors  for  a  payment of  US$27.0  mln  due  to  the  breach  of their  fiduciary  and  statutory  duties , including  the  duty  to  disclose  th eir interest  in  the  transaction,  after  the acquisition was aborted. The US$27 mln is  for  the  return  of  the  US$22  mln  paid for the acquisition, while the remainder is for damages for fraud and exemplary.

Although its existing business operations are  unaffected,  we  nevertheless  revise our  recommendation  to  HOLD  (from BUY) due to the rising uncertainties over the  potential  recovery  of  the  US$22.0 mln payment to acquire PT  ASU,  which may  necessitate  the  company  to  make an impairment loss of the above amount. The one-off impairment cost could result in the company reporting a  loss in 2014 results,  depending  on  the  advice  of  its auditors,  but  we  expect  sentiments  on the stock to be affected in the interim.

Meanwhile,  we  have  also  lowered  our target  price  to  be  in  line  with  its  peers. Our  new  target  price  of  RM1.80  (from RM2.30) is derived by assigning a lower PER  of  7.0x  to  its  2015  concession, construction  and  engineering  services earnings,  PERs  of  6.0x  to  its  education and trading earnings due to their smaller business  scale,  while  its  property division is valued at 0.7x its RNAV.  The above  ascribed  PERs  are  within  its sector peers.

Source: M+ Online Research - 9 Oct 2014