Technics Oil & Gas said it intends to spin off its subsidiaries in the contract engineering segment specialising in marine industry business for a separate listing in Taiwan.
The plan is to list the subsidiaries, Norr Systems Pte Ltd and Wecom Engineering Pte Ltd, collectively as the Norr and Wecom Group on the Gretai Securities Market of Taiwan. Technics said the Norr and Wecom Group has 'reached a sufficient scale to justify a separate listing'.
Given the different industries managed by the group, the directors believe that the proposed listing offers the company and its shareholders the opportunity to separately assess the potential market value of the Norr and Wecom Group, taking into account its growth prospects and risk profiles. The firm said it has obtained pre‐clearance from the Singapore Exchange on the proposed spin-off.
We estimate the combined net earnings of the Norr and Wecom Group to be almost 25% of Technics’ FY2012F earnings, or about S$5.5m.
Technics is currently trading at 8.1x 2012F earnings. In contrast, the average P/E on the GreTai Securities Market is 25.4x today. We believe that the Norr and Wecom Group should be able to secure a market valuation comfortably north of 10x, thereby unlocking value for existing shareholders.
We currently have a BUY call on Technics Oil & Gas with a fair value of $1.22.
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