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A Vital Step for Sinopec Group to Practice Internal Resource Integration
Generally Supported by Stock Analysts and Commentators |
HONG KONG, Dec 29, 2011 - (ACN Newswire) - Sinopec Kantons Holdings Ltd ("Kantons" or the "Company"; together with its subsidiaries (the "Group"); Stock Code: 934) is pleased to announce that it signed an agreement of acquiring the equity interest in the Five Crude Oil Terminal Operators ("Five Joint Ventures") from China Petroleum & Chemical Corporation ("Sinopec Corp.") to help Kantons to achieve its strategy to become the largest crude oil terminal business player in China and one of the largest in Asia. This is the first capital operation directed by Mr. Fu Chengyu, Chairman and Secretary of the Party Committee of China Petrochemical Corporation ("Sinopec Group") after his transfer from China National Offshore Oil Corporation ("CNOOC").
During the time in CNOOC, as Chairman, CEO and General Manger, Mr. Fu Chengyu has led CNOOC to complete several overseas mergers and acquisitions, providing him with affluent experience of capital operation. It is believed that the asset injection of Sinopec to its one and only red chip listed subsidiary is a vital step for Mr. Fu Chengyu to practice internal resource integration in Sinopec Group, to optimize and to foster a new capital platform.
The acquisition not only embodied Sinopec's determination to strengthen and expand Kantons, but also created a milestone for Kantons' future development. First, the acquisition will rapidly expand the number and capacity of crude oil terminals controlled or jointly owned by the Group. In consideration of the continuous increase in the size of international oil carriers, there are sharp requirements for the water depth at the shore. Deepwater shore is regarded to be rare resources in China coastal area. By acquisition, the number of crude oil terminal companies controlled or jointly owned by the Group will increase from two to seven, and the number of berths with the capacity to accept VLCC vessels will increase from two to nine. This represents a significant importance for the Group to dominate especially the deepwater shore resources.
Second, the acquisition will remarkably consolidate the core business competitive advantages of Kantons. Upon the acquisition, the crude oil terminal business of Kantons will cover East China, North China and South China, which are the most prosperous areas with the fastest growth in terms of energy demand in China. This geographical distribution operates in coordination with the location of Sinopec's oil refineries. In addition with the assistance of the existing oil pipelines, Kantons will have privileged position in the China crude oil terminal business.
Third, the acquisition will substantially increase Kantons' core business competitiveness. Upon the acquisition, the annual design capacity of crude oil terminal companies controlled or jointly owned by the Group will increase from approximately 85 million tonnes to approximately 225 million tonnes, rendering Kantons position to become the primary crude oil terminal platform in China, and progressively in Asia.
Forth, this acquisition will be favorable to promote Kantons' profitability. For the first nine months ended 30th September, the Five Joint Ventures recorded total net profit of approximately RMB289 million. Net profit attributable to Kantons will account to RMB157 million upon completion of acquisition. Moreover, as Ningbo Shihua's 2nd phrase terminal and Rizhao Shihua's terminal are currently still in trial operation stage, with the continuously growing demand for crude oil in China, the full operation of crude oil terminal and the increase of freight handling capacity of terminals, it is anticipated that the profitability of the five crude oil terminal Joint-Venture companies will further enhanced.
The management of Sinopec Group support and expect to reposition Kantons as a world-class petrochemical warehousing and logistics company. It is foreseen that the development of Kantons will not be stopped. Since Kantons is the one and only red chip listed company of Sinopec in Hong Kong, Sinopec Corp is thus anticipated to fully utilize Kantons as the red chip stock financing platform. This will bring Kantons red chip advantageous financing function into full play, accelerating the step to construct the overseas petrochemical warehousing and logistic. Moreover, this will serve as a fundamental support for Sinopec's internationalized operation.
In regard to this acquisition and proposed rights issue, response from the market is generally positive. In the view to the immediate and potential return on investment from the 5 Joint-Venture crude oil terminal companies soon to be acquired by Kantons, the investment sector conceives with optimism. Mr. Mark To, Head of Research at Wing Fung Financial Group Limited, expressed, 'the net profit of the 5 acquiring companies was RMB364 million in aggregate. Given part of the terminals are in trial operation stage, it is expected the profitability will be further enhanced once fully operational. Among the 5 companies, Kantons will acquire 90% of the equity of Caofeidian Shihua, while 50% for the other 4. Conservatively speaking, the historical price-to-earnings ratio (the "PER") of the acquisition was around 10 times, in regard to Kantons' historical PER of more than 20 times, the acquisition term is reasonable.'
Mr. Kingston Lin, Director of Research at Fulbright Securities has mentioned the acquisition and said, 'the proposed rights issue will raise an amount of around HKD2.5-3.5 billion, primarily served as acquisition capital for the 5 Joint-Venture crude oil terminals. The target acquisition price is around HKD2.1 billion. This shows that the purpose of right issue is chiefly for the acquisition terms. The remaining sum will serve as daily operation capital. This signifies the Company's confidence to boost the profitability by means of acquisition. Meanwhile, given the stable financial performance from the daily operations, in addition with the sizable figure of net income margin (50% in average for Qingdao Shihua, Tianjin Port Shihua and Ningbo Shihua in 2010), the forecast earning performance of the Company is henceforth expected to be enhanced considerably.'
Mr. Simon Lam, Director of Research Department at Christfund Securities, commented, 'proposed rights issue is favorable to Kantons' development prospect. The locations of the terminals to be acquired are around the Bohai Economic Rim and the Yangtze River Delta. Those regions are undergoing rapid economic growth, meanwhile located adjacent to oil refineries of numerous provinces. This allows a prestigious advantage in the market development strategy.'
Mr. Patrick Poon, Head of China Business Division at Haitong Securities, stated, 'The current import of crude oil in mainland is still growing continuously in accordance to the trend of GDP growth. The accumulated import growth for the first 11 months is 6.1%, representing rooms for development in respect to the demand for terminal services and storage.'
There is also a column suggested, 'this acquisition of equity of 5 terminals is sufficient to multiply the earnings for Kantons. Therefore, the diluted earning per share will not be affected after the proposed rights issue. With the circumstances of discounted price, proposed rights issue is worth to get involved.'
Please refer to the announcement and circular published on the Hong Kong Stock Exchange and the company website for more detail information regarding on the acquisition and rights issue.
Topic: IPO
Source: Sinopec Kantons Holdings Limited
Sectors: Gas & Oil, Daily Finance, Energy, Alternatives, Daily News
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From the Asia Corporate News Network
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