Trans-Asia Purchase Rationale

The thesis of buying TA was mainly the likelihood of TA’s petroleum subsidiary to be distributed as Property Dividend and with the recent statements of Phinma President and vice-chairman Ramon R. del Rosario,[1] that likelihood becomes highly probable. The first question that will come in mind is how much is Palawan 55 Exploration & Production Corp. (PEPC) worth?

The comparable company to PEPC is Philex Petroleum (PXP). That said, we go in detail what are the assets that underlie the mentioned companies.

PXP

TAR1

PEPC

TAR2

The most notable advantage of PXP over PEPC is its ownership of 36% in SC 72. However, PXP has no financial capacity to initiate the drilling of the service contract alone thus the 36% interest in SC 72 is actually misleading since this interest will eventually be diluted if a new partner with the financial capacity to perform the drilling of the well will buy-in to the service contract. In the case of PEPC, the partner with the financial capacity is BHP Billiton.

Another disadvantage of PXP’s assets is of course the encumbrance that SC 72 is a disputed area with China.

Despite all that is mentioned about PXP, the market still valued the company at P50 billion. That said, it is then safe to assume to have the following valuation model:

TAR3

Historically TA declares share right offerings (SRO), assuming that TA will continue the trend, we can conservatively assume that the SRO will dilute TA shares by 50%:

TAR4

Should the property dividend push through, a shareholder of TA may receive a property dividend which has a value of 0.82, 5.15, and 10.29. In the case of 50% dilution of TA shares, a TA shareholder may receive a property dividend with a value of 0.55, 3.43, and 6.86.

One may argue that it depends on the number of PEPC shares that will be available for property dividend, however, that fact is irrelevant. To illustrate my point:

TAR5

Based on the illustration above, as long as the assumed value of PEPC remains constants, the value of PEPC for each TA shareholder remains the same regardless of the number of PEPC shares distributed.

At current TA price of P2.55~P2.60 the stock is still undervalued considering that at this price, the value of the property dividends may surpass TA’s current market price.

Weaknesses:

  1. Non-occurrence of PEPC property dividend
  2. Relative valuation may not be realized by the market.

Sources:

  1. Clarification of news article: “TA Oil finalizes PEPC listing”, http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-3284_TA.pdf
  2. Forum Energy Plc Annual Report 2011, p. 3, http://www.forumenergyplc.com/DocumentLibrary/FOR-16846-AR11-web.pdf
  3. Otto Energy Annual Report 2012, p. 10-12, http://www.ottoenergy.com/irm/content/annualreport/AR2012.pdf

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

Advertisements

12 thoughts on “Trans-Asia Purchase Rationale

  1. Pingback: Stock thoughts: VMC, APC, TA | Fundamental Enthusiast

  2. Where did you get the no of TA shares (i.e. 4.3B shares)? In annual report 2012, TA shares is ~100B shares; some @ 0.01 par value and some @ 1.00 par value

    Reply
  3. Hi sir. The property dividend disclosure was released today. I am wondering if you have a computation of the possible value of each TAP share.

    Reply
  4. I think TA just bought Frontier shares…so another make or break deal next year to TA in case Frontier makes that Oil flow and I’m actually pessimist if Frontier can make that Black Gold flow ( I’m thinking they just want to make money ).

    As for the SC55 ( Not sure if Otto has the capabilities to do it).

    But moving forward, I don’t care if this Oil exploration make it or not, it’s really a bonus for me.
    As I’m focus on their Electricity Generation business.

    By my calculation TA will eventually reach the 2b net income by 2016 if the Guimaras 54mw and the 270mw Calaca plant push through. And their EPS will hit at least .3 x 10 = 3

    Then from there CASH is KING , they can do whatever they want , they can partner all the Geothermal contracts of BSC (If that is for real).

    Bro. Renz can I know how much confident you are in the prospect of BSC. It seems just noise for now.

    Reply
    • TA is a good business and i agree that the petroleum prospect is a bonus.

      BSC for now is just a cash rich company with a possibility that they will operate commercially their Indonesia joint venture.

      Reply
  5. Oh wait. it’s just pop out in my mind. The possible REASON why TA bought Frontier shares so that they can release TAP…very interesting….sorry if I’m so bias with TA

    How I wish I could have the emotion control by Bro. Renz

    Reply
    • Thank you for the compliment bro. I removed the portfolio page for a while for various reasons but one of it is to maintain my psychological composure in my investments.

      TAP will be distributed regardless TA has bought FOC shares. Probably TA was convinced with the probability of FOC’s prospects.

      Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s