Highlights

• Outperform amid uncertainty... Since our fi rst O&G – SPAC report dated i n 10 Dec 14, Cliq and Sona’s share price has surged by 9.7% and 12.5% respectively, outperformed KLCI index (versus FBM KLCI 1.6% fall) and higher than FD rate as share price and intrinsic cash value per share is converging with maturity date approaching (Ref Fig 3-5).

• Cash call from Cliq… Of late, Cliq has proposed renounceable right issue together with free warrant on the basis of 1 right share for every existing share to address the potential cash shortfall for quali fying acquisition (QA) due to strengthening US dollar against Ringgit and potential dissenting shareholders to vote against QA.

• Cliq base value – RM0.73 per share… he proposed QA and right issue exercise are inter-conditional. Dissenting shareholders are eligible to get back RM0.73 per share. This reinforce our view that the gross trust value for SPACs should serve as the base value as investors can choose to votes against QAs and get back the cash value from trust account plus net interest earned.

• How much upside left for Sona and Cliq? … Cliq and Sona will mature in 09 Apr 16 and 29 July 16 respectively. After taken into account interest earn of 3.2% pa, 25% tax on interest and other expenses (Ref Fig 2), Cliq and Sona still provide 4.8% and 6.3% upside to their cash value respectively. Annualised return is about 10.1% and 8.1% respectively which is significantly higher than average FD rate of 3.2% p.a.

• The Dark Horse – Reach Energy (circa 11.9% pa.)… br /> Among the three undergraduate O&G SPACs, Reach Energy is trading at highest discount of about 16% to its latest gross trust per share mainly due to longer maturity date (665 days left vs. Cliq – 173 days vs. Sona – 284 days). If Reach Energy manages to secure QA in near future, we expect share price to trade at least close to its gross trust per share of RM0.711 per share during IPO (exclude any interest earned during the period) which should provide immediate return of 16%. For investors with low risk appetite and has longer investment horizon (hold until maturity), Reach Energy provides annualised return of 12.6% per annum.

• Challenging in getting QA… SPACs are cash companies looking for oilfield assets and should potentially be able to negotiate for better pricing especially in the declining oil price envi ronment. However, transparent disclosure on the maturity date and cash available could disadvantage SPACs.

Risks

• Identification of quali fying asset takes more than 3 year; Further market mispricing; Plunged in oil price.

Valuation

• Share prices should be underpinned by cash backing per share. The current discount provides unique opportunity to lock in long term (less than 3 years) returns amid uncertainty on external and internal macro issues.

Source: Hong Leong Investment Bank Research - 19 Oct 2015