Corporate Update

 

BUY Maintain

 

Price S$0.360

 

OCEANUS GROUP

 

Target S$0.500

 

Gunning for Taiwan dual listing

 

Listing of TDRs on Taiwan Stock Exchange. Oceanus has announced that

 

it is pursuing the listing of TDRs representing up to 200m shares in order to

 

achieve higher valuations. The 200m shares will comprise of 100m new

 

shares and 100m of warrant-converted shares. We revise our forecast EPS

 

downwards by 14.6% and 9.1% for FY09F and FY10F respectively after

 

factoring dilution of share base and higher interest expense. Target price is

 

lowered to S$0.50. Maintain BUY.

 

Potentially higher valuation. Oceanus’ management has indicated that the

 

key motivation for the listing of TDRs is to garner higher valuations given that

 

TWSE trades at a premium to STI (TWSE: 23.7x FY09F and 15.5x FY10F P/E

 

vs STI: 17.3x FY09F and 14.9x FY10F P/E). However, the TDRs are not

 

fungible and thus provide no room for arbitrage, unlike American Depository

 

Receipts (ADRs). Oceanus follows in the footsteps of Medtecs and Eastern

 

Asia Technology, which listed TDRs on the Taiwan Stock Exchange in 2007

 

and 2002 at a premium of ~250% and ~7% respectively. Changtian Plastic &

 

Company and Action Asia have also proposed to seek a dual listing there.

 

EPS down 9-15%. The 200m new shares represent 11.3% of current issued

 

share capital of 1,765m shares and 10.2% of the enlarged share capital of

 

1,965m shares. In addition, we expect higher expense in the form of increased

 

finance costs due to the S$73.5m loan from warrant holders. The EPS for

 

FY09F and FY10F are thus revised downwards to 2.86S¢ (-14.6%) and

 

3.86S¢ (-9.1%) respectively.

 

Lowering target price; maintain BUY. We are lowering our target price to

 

S$0.50 from S$0.52, based on a 20% discount (previously 30% discount) to

 

the peers’ P/E relative to their respective indices, representing a potential

 

upside of 39%. We think that the EPS dilution and higher finance cost will

 

more than offset the potentially higher valuation arising from TDR listing. At

 

this target price, Oceanus will be trading at 17.5x FY09F and 12.9x FY10F

 

P/E, which is less than the forward P/E of TWSE.