News    UMW Holdings (UMW) has announced the proposed listing of UMW-OG Group on the Main Market of Bursa Malaysia. The proposed initial public offering (IPO) will involve the issuance of 843.18m shares comprising a 39% stake in UMW-OG. It was reported that UMW may raise USD500m from the listing of UMW-OG.

UMW-OG is principally involved in the upstream sector of the oil and gas industry, providing offshore drilling and oilfield services, which includes engineering and maintenance services.

Prior to the listing, UMW plans to undertake an internal reorganisation exercise which involves: i. UMW subscribing to 90.0m new UMW-OG shares for RM45m. ii. UMW transferring to UMW-OG its offshore drilling business for RM44.5m cash, and certain companies in the oilfield services division for a total purchase consideration of RM105.5m. UMW-OG will finance the acquisitions (and other intercompany liabilities) through the combination of new UMW-OG shares (55%) and the utilisation of the IPO proceeds (45%).  

The internal reorganisation exercise is expected to complete by 3Q2013 while the listing is expected to be in 4Q2013.

The proceeds raised from the IPO will be utilised for the repayment of existing debts, capex and working capital purposes as well as to defray expenses relating to the listing.

Comments    The listing will enable the group to unlock the value of its investment in UMW-OG as well as provide the opportunity for UMW-OG to expand its business and grow its market position. 

  With the listing, UMW-OG will have direct access to the equity capital market, which will enable it to have greater capital management flexibility.

Outlook   We expect UMW Toyota and Perodua to retain their leadership in the non-national and national passenger car segments respectively. 

The proposed listing may serve as a re-rating catalyst for the group. 

Forecast   We are leaving our numbers unchanged at the moment. The group’s earnings are expected to improve postlisting due to the interest savings from the repayment of borrowings and from the disposal gain. However, UMW has yet to determine the offer price. Further details on the proposed listing will be furnished via its Circular to the Shareholders, which will be published in due course.

Rating   Maintain MARKET PERFORM

Valuation    Maintaining our target price of RM14.00 based on 14x authorities and dependent on market conditions.

Risks   The listing exercise is subject to the approval by relevant FY14 EPS. 

Source: Kenanga