Generous offer. The offer price is at 24% premium to Friday’s closing price and implies 15.7x 2009 PE and 11.6x 2010 PE, and 1.8x and 1.7x P/Bv, respectively. The offer price is generous and valuations are significantly higher than regional peers’ average of less than 10x PE for 2009-10 and 1.1-1.2x P/BV. But for Petrochina, the price tag implies EV/refining capacity of US$16,000/bpd including SPC’s distribution network and E&P assets, which is still lower than the estimated refinery replacement cost of US$20,000/bpd.
Upgrade to Buy with target price of S$6.25. The share sale should trigger a tender offer. In our view, the offer price is attractive and we recommend investors accept the offer. With this tender offer, SPC’s share should rise to S$6.25, which implies 24% upside.
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