Thursday 13 February 2014

Losing Steam In Protasco

About 2 weeks ago, Protasco announced the amended SPA of its Oil & Gas venture with PT ASU.

Refer this link for the original version.

After the amendment:

- Acquisition of 76% in PT ASI is reduced to 63%
- Indirect 50.5% stake in PT Haseba is reduced to 42%
- Purchase price of USD55mil is reduced to USD22mil
- Four-year PT ASI PBT guarantee of USD50mil is reduced to USD22mil

The 4-year PBT guarantee is progressive by years

The profit guarantee is for PT ASI. Protasco only have 63% stake in PT ASI now. So for Protasco, it is guaranteed to get USD13.9mil or RM45.7mil (exchange rate 3.3) in the first 4 years.

Even in year 2017, when the profit guarantee per year is USD9mil or RM29.7mil, Protasco is only guaranteed to get PBT at least RM18.7mil. This is only 18% of its FY2012 total PBT.

Initially I'm very excited on Protasco after I found out that PT Haseba made RM95mil profit after tax in FY2009. This translates into RM63mil PAT in a single year for PT ASI (ASI owns 66.5% in Haseba).

If you compare RM63mil PAT in a year to RM73mil PBT (USD22mil) in 4 years, there is a lot of difference.

The reality is, where got so many big frogs jumping all over the street?

It is also not a good sign if a company's profit forecast is reduced...

However, there is an agreement like this in the restated SPA:

It seems like there is a targeted production in the agreement (7.2mil barrels of oil & 44.2bil cubic feet of gas), in which after the targeted production is reached, Protasco will have 100% of PT ASI, or 66.5% PT Haseba.

Do I interpret it correctly? ( I have to admit that I'm too lazy to read the whole document)

I have no idea how long this targeted production can be reached, but this seems to be very positive for Protasco in long term.

I assume that it should be at least after the 4-years profit guarantee then only the targeted production can be reached. As we can see from the progressive nature of  its guaranteed profit, PT ASI's profit is expected to increase year by year. 

When Protasco has 100% PT ASI, and if PT ASI posts USD10mil net profit in year 2018, then it will be RM33mil net profit for Protasco in 2018 from its O&G segment alone. 

For comparison, Protasco's whole year FY2013 net profit should be RM40mil+. This looks attractive, doesn't it?

However, this will be many years later...

It is fair that Protasco gets less profit guarantee with less purchase price. However, I'm still feeling slightly disappointed with this new deal. 

I don't mean that Protasco is a bad company. It's just that I am a bit disappointed with its O&G venture which drew my interest to the company in the first place, or else I don't usually like companies that depend heavily on government for contracts.

I expect greater and faster contribution from its O&G venture, but it turns out to be rather slow.

However, Protasco's property arm can still carry the company forward in the near future. Its O&G segment certainly has a great potential, but might take a while to produce wonder.

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