Main points of investment:
Acquire Kazakh oil and gas transportation company and expand Kazakh market. Singapore InterContinental, the company's controlling subsidiary, plans to buy TCO's 50 per cent stake in Petroleum LLP, a Kazakh oil and gas transportation company, for $100m.
Petroleum LLP, which is mainly engaged in oil and LPG transportation, tank leasing and entrusted storage services, had 153 leased trucks and 3378 tanks (including 947 LPG tanks and 2431 oil tanks) as of April 30, 2016. the audited revenue in 2015 was $67.029 million and the net profit was $18.798 million. This acquisition will help to further expand the company's development potential in Kazakhstan and enhance its anti-risk ability, thereby improving the company's profitability.
Ma Teng and Keshan Company operated stably and its production and sales increased. Mateng Company's Mating, Dongke and Kara mature oilfields have good production conditions and stable production. The exploration work in the Dole Tarly block of Keshan Company is nearing completion and is applying for a development license from the Kazakh government. We expect that Keshan Company still has a lot of room to increase its production capacity in the future. Mateng and Keshan are currently operating well.
Issue the report on issuing shares to purchase assets and raising matching funds and related transactions (draft). Intercontinental Oil and Gas issued a report on share purchase (draft). It is proposed to issue 459 million shares at a price of 7.33 yuan per share to purchase a 96.70% stake in Shanghai Luozhou Xinke. After the completion of the transaction, InterContinental Oil and Gas holds a 100% stake in Shanghai Luozhou Xinke. At the same time, it is proposed to issue no more than 437 million shares at a price of 7.33 yuan per share to raise a total of no more than 3.2 billion yuan for the construction of the underlying assets under construction and to pay the taxes and fees for this M & A transaction.
Oil and gas mergers and acquisitions are making steady progress. Shanghai Luozhou Xinke (or its subsidiaries) has completed the acquisition of 100% equity in Banks and 100% equity in Keith Investment on September 29 and October 14, respectively, and it holds oil and gas assets in Albania and Kazakhstan, respectively.
Positive changes are expected in the international crude oil supply side, and the prosperity of the petrochemical industry will pick up. From the perspective of crude oil supply and demand, the overall demand side is relatively stable, and there will be some positive changes on the supply side in the future, including changes in crude oil production in the United States and Middle East countries, capital expenditure of oil companies, and so on. We believe that oil prices fluctuate in the short term but do not change the upward trend, and the prosperity of the petrochemical industry will pick up.
The performance of the rebound in oil prices is flexible. Due to the low cost of purchasing oil field assets at the time of low oil prices, we estimate that the full production cost of the oil field assets owned by the company after this acquisition is about US $350.40 per barrel, which can still make a profit at low oil prices. Crude oil equity production is about 2 million tons (about 15 million barrels), and crude oil production will further increase in the future. As a pure oil and gas production company, its performance is flexible when oil prices rebound.
Profit forecast and investment rating. We estimate that the EPS from 2016 to 2018 will be 0.01,0.26,0.55 yuan respectively (based on the estimate of 3.159 billion shares after the completion of this non-public offering). According to the 2017 EPS and 45 times PE, we give the company a target price of 11.70 yuan and maintain the "overweight" investment rating.
Risk hints: large fluctuations in crude oil prices, additional issuance and acquisition progress, new business expansion risks.