Target Price: SGD0.64
Sliding Further Into The Red
TGH announced yesterday that it expects to report a loss for 4Q13 and FY13, making this the second consecutive profit warning. With the new compressor-leasing business requiring heavy capital investment, as evidenced by the recent warrants issue, speculators’ hopes of a special dividend from the sale of Nor Offshore Group may be dampened. Maintain SELL with a SGD0.64 TP.
• Two profit warnings in a row. Technics Oil & Gas (TGH)’s earnings visibility is at an all-time low, with the company no longer reporting its orderbook and with no recent wellhead satellite platform orders from VietSovPetro. The earnings outlook is weak, as the shift to the new compressor-leasing business will take one to two years to build up meaningful volume, while an excess of fabrication space continues to weigh on orders and margins.
• Warrants issue to tap SGD10.9m shareholder cash bodes ill for hoped-for special dividend. TGH is also issuing 112.3m in rights warrants at SGD0.10 per warrant with a strike price of SGD0.20, exercisable at the end of three years from issue. This will raise SGD10.9m this year, and may raise another SGD22.5m in three years assuming full exercise. The cash will be used to fund the compressorleasing business. Speculators in TGH’s stock who may have hoped for a special dividend following the full divestment of Nor Offshore Group shares (5279 TT, NR), may be disappointed, as the cash needs of TGH may outweigh its desire to distribute dividends.
• Dividend likely to be omitted this year. Given TGH’s loss situation and large cash requirements presently, we believe that the company will not be dishing out any dividend this year.
• Losing investment-grade status. Maintain SELL, SGD0.64 TP. TGH is no longer a high-dividend play, as its capital reduction exercise has been completed with retained earnings now near nil. The earnings outlook is weak and largely contingent on the vagaries of successful oil discoveries by VietSovPetro. Other oil & gas plays are likely to deliver higher stock returns in the near term. SELL, with a SGD0.64 TP.
Publish date: 07/10/13