Speculating on Trans-Asia Property Dividend

Kindly see video below before reading the rest of the post:

Trans-Asia Oil and Energy Dev’t Corp. (PSE: TA) speculation is based on Dr. Francisco Viray, Pres. and CEO, Trans-Asia Oil and Energy Dev’t Corp. statement on October 25, 2012 interview in ANC.[1] In the video TA bared their plans to spin off their subsidiary Trans-Asia Petroleum (TAP), formerly Karang Besar, and list the company by way of introduction. According to the Dr. Viray, they are planning to list the company by 2013 which is logical, in my opinion, since TA has two upcoming drilling.

Listing by way of introduction (LBI) refers to listing of shares where no public offering will be undertaken. LBI requires the company to meet any one of circumstances under the Amended Rules on Listing By Way of Introduction and the listing requirements under the Revised Listing Rules.

Listing by way of introduction may be appropriate in the following circumstances: [2]

  1. Where securities for which listing is sought are already listed or traded or will simultaneously be listed on another stock exchange or subject to approval of the Exchange, is listed on another trading market;
  2. Where the security of an unlisted issuer are distributed by way of property dividend by a listed issuer to shareholders of that listed issuer;
  3. Where a holding company is formed and its securities are issued in exchange for the securities of one or more listed issues and the listing of the listed issuer is withdrawn at the same time as the securities of the issuer are listed;
  4. Where listing of securities in an exchange is mandated by law of by the SEC, in the exercise of its powers under the Securities Regulation Code; OR
  5. Where public offering of securities is mandated by law or applicable regulations; Provided, that the applicant company secures a clearance from the relevant agency stating that such agency does not object to the listing by way of introduction of the securities of the company;

TAP will have to conform to circumstance “2” which is to declare a property dividend in order for the company to list by way of introduction. Regarding the listing criteria, TAP will be able to meet the listing criteria of the secondary board where a company shall only demonstrate superior growth potential which is inherent to an oil and exploration company.[3]

TA1

A company worth noting that took a similar path as TA is Philex Mining (PX). PX is a mining company that has 64% interest in PXP which is a company engaged in oil exploration. PX spun-off PXP by declaring it as a property dividend and listing the company in the Philippine Stock Exchange (PSE).

On May 26, 2011, PX disclosed the results of the Board of Directors Meeting where it was agreed that 1 PXP shares is entitled for a shareholder of 8 shares. [4] On that same day, on a press release, PX disclosed that they will seek SEC approval for the PXP property dividend. [5]

On July 21, 2011, PX disclosed the SEC approval of PXP property dividend. [6] On August 18, 2011, [7] PXP shares are distributed to the shareholders of PX and PXP was listed by way of introduction in the PSE with a listing price of P1.20 on September 21.

For this year, an insider of TA has been buying a lot of shares in the market:

TA2

The transactions above hints that TA shares are undervalued even at 1.80. How much exactly is the value of TA Petroleum should it be distributed to shareholders?

PXP has a listing price of 1.20 per share or a market capitalization of 2.04 billion. Assuming that TAP will command the same market capitalization we can have the following valuation:

TA3

We can reasonably assume that upon the announcement of TAP stock dividends, TA’s intrinsic value of P2.08 (projected EPS of .16 x PE ratio of 13x) should increment by 0.47 to acknowledge TAP’s value. TA’s value should be at P2.55.

TA has a board of directors who have shareholder value in mind. The company has declared cash dividends of P.04 since 2005. The Company has announced that the annual stockholder’s meeting shall be held on March 21. [8]

Numerous Catalysts for This Year

First catalyst would be possible announcement of TA Petroleum property dividend which might be before or after March 21 but not beyond the first half of this year.

Second catalyst would be the drilling of Cinco prospect in SC 55 in partnership with BHP Billiton in August.

Third catalyst would be the drilling of on-shore oil prospect in SC 51 in August.

Fourth catalyst would be the commercial operation of Maibarara geothermal power plant on the third quarter of this year.

 

RISK:

Non-occurrence of TA property dividend will substantially impair the valuation.

Source:

  1. Company Call: Trans-Asia Oil and Energy Dev’t Corp, http://www.youtube.com/watch?v=y50_ahfcjhY
  2. Article III, Section 1, Amended Rules on Listing By Way of Introduction, http://www.pse.com.ph/stockMarket/listedCompaniesRules.html?tab=0
  3. Part E, Section 2, Subsection e, Article III, Revised Listing Rules (MFB 149-2004), http://www.pse.com.ph/stockMarket/listedCompaniesRules.html?tab=0
  4. Declared of dividend Composed of property and cash, http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-3991_PX.pdf
  5. Press Release: “Philex Mining declares Dividend; To list Philex Petroleum shares on the Philippine Stock Exhcnage,” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-4002_PX.pdf
  6. SEC Approval of Dividend, http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-5417_PX.pdf
  7. Distribution of shares of Philex Petroleum Corporation, http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-6197_PX.pdf
  8. Annual Stockholders’ Meeting on March 21, 2013, Record Date on February 19, 2013, http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-0619_TA.pdf

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

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10 thoughts on “Speculating on Trans-Asia Property Dividend

  1. Pingback: Philippine Tourism, Stock Thoughts: MPI, SCC, TA | Fundamental Enthusiast

  2. I was actually thinking along the same lines the other week. However, I considered the fact that PXP now has a market cap of P55 billion. Even if TAP will be worth just 10% of PXP, the value to TA would then be P55 billion x 10% / 4.86 billion shares (not 4.3B as in your post) = P1.13 per share.

    I haven’t watched the video but another source tells me that TA will declare 100% of TAP as a property div. Since listed PHN owns 20% of TA, it will also directly own 20% of TAP after the property div. A partial NAV of PHN would then be [(TA market cap + TAP market cap) x 20%] or [(P9.7 billion + P5.5 billion) x 20%] = P3.04 billion which is just 10% less than the current market cap of PHN. Just imagine what the value of PHN would be if TAP is valued at 50% of, or even at par with, PXP.

    IMHO, buy both TA and PHN. Property div may come as soon as the AGM.

    P.S. I can’t resist. If, and it’s a BIG IF, TAP is valued at 50% of PXP, that’s P27.5 billion. 20% of this would be P5.5 billion. Divided by 258.9 million shares, that would be over P21 per share. The stock is doing less than P14 now.

    Reply
    • Hello sir,

      Yes. I am aware of that valuation.

      The reason why I did not buy PHN is because holding PHN will give you no property div.

      If you are a holder of TA shares that will give you property dividend which you can sell and convert to cash.

      My opinion only.

      Good investing,

      Renzie

      Reply
  3. Just want to say thanks for this article. I was able buy TA the moment I have read this. TA has been under my radar before but having second thoughts to enter because I don’t have enough information. Kudos to you. Keep it up. Now I’m reaping the rewards. I’m planning to hold this company for long term but still depends on the outcome of their projects this year.
    TA(35% of my portfolio)

    Reply

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