Bangchak Petroleum

Bangchak Petroleum Plc (BCP)         

Investment thesis
BCP’s purchase of a minority stake in Nido constitutes only a small investment. Of more pressing concern is PTT’s planned share sell-down of its BCP stock. Although, we think the market has already priced in possible downside risk to earnings from soon-to-be-announced energy policy reform (particularly possible ex-refinery price cuts), the issue limits the scope for share price upside. BCP currently trades at an FY14 PER of 8.6x—discounts to both its long-term average of 10.0x and to the regional mean of 15.3x—and at a YE14 PBV of 1.0x (discounts to both its long-term mean and the regional average of 1.1x). As such, share price downside risk appears limited.
Acquisition of shares in Nido Petroleum 
On July 30, BCP announced that BCP Energy International Pte Ltd (a wholly-owned owned subsidiary) had signed an agreement with Petroleum International Investment Corporation for a 19.66% stake in Nido Petroleum Ltd (Nido). The total consideration will not exceed AUD$22.2m (~Bt666m). The deal is subject to the approval of the relevant authorities. Nido is domiciled in Perth, but its assets are in the Philippines and Indonesia (see Figure 1).
BCP’s first international and E&P investment
This deal is BCP’s first stake in an offshore company and its first E&P investment (Figure 1). The key objectives of purchasing the holding are: 1) to integrate upstream, 2) to diversify the portfolio into the international market and 3) to acquire additional income. We think that at this stage BCP will be a passive investor and might possibly receive dividend income from Nido. Note that Nido did not pay a dividend for 2013, according to Bloomberg.
As long as BCP’s upstream investments remained modest, it wouldn’t materially affect its value, but we would turn negative if the firm were to aggressively invest in upstream businesses, which are very risky and capital-intensive.  
Acquisition cost is inexpensive terms of reserve price
The acquisition cost of AUD$22.2m implies EV/1P reserves of about AUD$30/boe, which is inexpensive (an 18% discount to the benchmark acquisition cost for oil-cum-gas assets of AUD$37/boe [US$35/boe]). But the deal price of AUD$0.055/share represents a 34% premium to Nido’s market price on the ASX.
The source of funds will be internal cash (~Bt666m). BCP had cash on-hand of Bt4.5bn at end-March 2014.