Highlights

CLIQ Energy the 2nd SPAC (Special Purpose Acquisition Company) was listed on 10 April 2013 and has 3 years to identify a qualifying asset (QA) in the Exploration and Production (E&P) segment of the O&G value chain.

The IPO price of the stock was 75 sen with a free warrant (exercise price: 50 sen) which last closed at 60 and 23 sen respectively, or a total of 83 sen.

How it works: Once a qualifying asset (QA) is found an EGM to vote on the worthiness of the QA will be held. Shareholders of CLIQ who vote against the acquisition, will receive 90% their funds back, 7 market days after the completion of a qualifying acquisition. Hence a base case return for CLIQ is 67.5 sen (90% of 75 sen IPO price) if investors votes against, assuming interest return offsets taxes and distribution expenses. The IPO funds are in an interest bearing account with Deutsche Trustees Malaysia Berhad. The warrants CAN NOT be exercised before the qualifying acquisition is made, hence there will be no dilution to the base case return for dissenting shareholders.

Comment

Hibiscus identified a QA 4m after listing. As a base case and assuming it takes 1 year for a dissenting shareholder to fully recoup their investment, yesterday’s closing price (67.5/60 sen) implies a base case return of 12.5% before transaction costs. The return maybe higher if a value enhancing QA is injected before this time or lower if the money is returned after 3 years. There is currently no information on potential QAs but based on the precedent, Hibiscus and logic, the asset is likely to be accretive.

Based on the implied cash value, we believe the market has mispriced the security due to a misunderstanding of the SPAC structure. Hibiscus traded at a low of 52 sen and is currently trading at RM1.46 after a successful completion of the qualifying asset.

While most O&G stocks listed locally are oil field services companies, CLIQ is interesting because it may give investors (assuming successful investment into a QA) direct exposure oil producing assets and thus oil price.

We are OVERWEIGHT the O&G sector and believe the sector is in a cyclical upswing. Assuming the current price of Oil stays above US$80/barrel we expect the number of economically viable O&G fields to remain robust and thus deal flow to finance production to remain buoyant.

Risks

• Identification of qualifying asset takes 3 years
• Further market mispricing.

Valuation

Share price should be underpinned by the cash backing per share which is 67.5 sen. The stock should trade over and above this value to factor in the likely probably of finding a value accretive qualifying asset.

Source: Hong Leong Investment Bank Research - 12 Apr 2013