The share price of Scomi Marine has appeared more attractive following its recent weakness. The company is the clear beneficiary of the restructuring exercise of the Scomi group of companies. With RM0.185/share capital repayment safely in the bag, which will go ex-entitlement this Wednesday (15 Aug), the other proposed 1.61b new share issue at RM0.47/share of Scomi Marine in exchange for the assets of Scomi Oilfields' Eastern countries, should lend a support base for the current share price level. The price tag is fairly in line with our fair value of RM0.48/share (ex-repayment) on the stock. The company is set to announce its 2Q12 results likely on 29 Aug, with the results expected to be weaker than that of 1Q12 (RM16.4m). We are waiting to see the consistency of its earnings and track it to our own net profit projection of RM29.1m. We are retaining our fair value of RM0.665 (cum-repayment) and RM0.48 (ex-repayment) for Scomi Marine.

Price still attractive despite earlier rally. The share price of Scomi Marine (NOT RATED) performed fairly well since our first report on the company back in early May 2012. It rose from RM0.39 three months ago after our report and hit a 52-week high at RM0.54 on 3 Aug before settling down at RM0.495 last Friday. Despite the earlier rise, the share price is still attractive for entry at even the current level as we are of the view that Scomi Marine should be worth RM0.655/share (RM0.185 + RM0.47) after its restructuring (the proposed 1.61b new share issuance are already priced at RM0.47/share). This implies a still upside potential of 32% from here.

Five stages of restructuring plan. To recap, there are five steps under the restructuring exercise where, firstly, there will be USD57m worth of equity disposal under the internal restructuring at Scomi Marine. With the proceeds, Scomi Marine will distribute RM0.185/share to all its shareholders. In Step 2, the business of Scomi Oilfield Ltd (SOL), which is under Scomi Group (SGB), will be split into two groups to be divided geographically into Eastern Hemispheres (SOLEH) and Western Hemispheres. A NEWCO will be set up in Step 3 and it will take over Scomi Marine and assume its listing status. In Step 4, the NEWCO will acquire SOLEH and SGB's Scomi SOSMA Sdn Bhd (SSSB) and Scomi KMC Sdn Bhd (SKMC). Lastly, SGB will offer the NEWCO shares to its existing shareholders.

Step 1 near completion, Step 2 to 4 on the way. The RM0.185/share capital repayment is already set to be paid out on 29 Aug. On 24 Jul, Scomi Marine announced the details of the acquisitions of SOLEH, SSSB and SKMC. Under the proposed acquisitions, Scomi Marine is paying 1) RM1.02b for SOLEH, 2) RM6.7m for SSSB and 3) RM769k for a 48% stake in SKMC. Scomi Marine will issue 1.61b new share at RM0.47/share (worth RM756.1m) and assume a total of RM263.9m receivables for the SOLEH acquisition. Upon completion, SGB's stake in Scomi Marine will increase to 65.65% from 42.76% currently. These stages of the exercise are expected to take three months to be completed.

Fair pricing.Scomi Marine is paying 23x FY11 PER for SOLEH and 6.8x for SSSB while SKMC is based on 48% of the adjusted net asset value. On the other hand, the 1.61b new Scomi Marine shares at RM0.47/share is based on 12.3x FY11 PER. In our opinion, the acquisition prices are fair especially since SOLEH is one of the world class players. Based on pro-forma FY11 numbers, the enlarged Scomi Marine's net profit will increase to RM65.5m from RM28.0m while the issued shares will rise to 2.34b shares from 733m shares currently. Based on last Friday's closing price, the enlarged market cap would be RM726m, slightly higher than our previous estimate of RM640m-RM710m.

Fair value of RM0.665/share. Scomi Marine is likely to announce a weaker 2Q12 results vs. the RM16.4m net profit reported in 1Q12 although we expect the overall number to be still likely within our FY12 net profit projection of RM29.1m. We are maintaining our fair value of RM0.665/share on a cum-cash distribution basis, based on 7.5x CY12 PER, or at an ex-repayment fair value of RM0.48/share.

Source: Kenanga