PTT

PTT Plc

What’s new? PTT this morning launched a tender offer for the remaining shares in SAR (which is listed on the SGX) of S$1.90/share, a total value of S$1.2bn (equal to US$959m). PTT already owns 45% of SAR. The offer is expected to be completed by October 2012.
Offer price implies US$12/reserve, but only US$1.16/resource: The offer price of S$1.9/share is 27% higher than SAR’s closing price on Friday, but equal to its 52-week average. The price is quite high, implying US$12/reserve tonne—double the price paid for its entry in March 2009 and more than BANPU’s current implied price of US$9/reserve tonne.
In our view, the high offer price is for absolute control of SAR, which has vast of coal resources (which need to be developed into reserves). Based on YE11 coal resources of 1,505m tones (more than twice as much as 638m tones as of YE08), the cost is only US$1.16/resource tonne, comparable with PTT’s initial acquisition price in March 2009.
Net debt/equity ratio will rise modestly: The acquisition will push up the net debt/equity ratio slightly to 0.61x from 0.56x at end-June. Nonetheless, if we include its share participation in PTTEP’s recapitalization plan, then the net debt/equity ratio may rise further to 0.72x, which would still be comfortably below its policy threshold of 1x.
Negligible earnings accretion: As full-year consolidation will materialize next year, we expect earnings accretion of 3% for FY13 and 4% for FY14. It’s worth noting that this year’s contribution will be negligible, as the deal is to be completed by October.
Action: We regard this news as neutral for sentiment toward PTT, as the deal’s value and earnings accretion will be small. While the offer price is apparently high in terms of a reserve valuation, we think it’s reasonable, given the scope for reserve upgrades and production growth. Production is targeted to rise to 14mt in 2013 and to 17mt in 2014, from 12mt in 2012.