It said on Tuesday this was based on book value at a 20% discount on the cost of the group’s rigs together with a 30% reduction to the acquisition costs of Icon Offshore and Orkim.
It cited The Edge Malaysia report over the weekend that the proposed merger between UMW-OG, Icon Offshore and Orkim may be difficult to conclude after UMW-OG extended the deadline to conduct due diligence on the other two companies to May 19 this year.
Also, the cut-off date to fulfil, waive or complete the conditions precedent for the merger will be extended by additional three months to 19 July this year.
“In our view, the abortion of these acquisitions will be value-enhancing for UMW-OG. Recall that we viewed the proposed acquisition (together with the demerger from UMW Holdings) of Icon Offshore and Orkim at unjustified price-to-book values (PBVs) of one time and 3.6 times respectively versus UMW-OG’s 0.8 times is value destructive for the group against the backdrop of an offshore sector still struggling with operating losses.
AmInvestment Research pointed out that without these acquisitions, it estimates that the merged entity’s recapitalisation plan could have been cut by 60%, resulting in a significantly lower dilution to minority shareholders.
“With the absence of the value erosion from Icon Offshore and Orkim should the proposed merger be aborted, we estimate that UMW-OG’s fair value could be raised by 15 sen to 80 sen a share.
“Hence, the stock currently trades at a 38% discount to its latest book value of RM1.0 a share, which could still be eroded by further losses together with the still likely scenario that the value-dilutive merger of Icon Offshore and Orkim proceed as planned,” said the research house.
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