Technics Oil & Gas

[Louhan]

I notice that Technics Oil & Gas is trading at about 69 cents. Its warrants, which can convert to Technics Oil & Gas shares at 25 cents each, are trading at only 26.5 cents. Is there an under-pricing of its warrants? Can anyone enlighten me on this?

[ngcheeki]

I notice that Technics Oil & Gas is trading at about 69 cents. Its warrants, which can convert to Technics Oil & Gas shares at 25 cents each, are trading at only 26.5 cents. Is there an under-pricing of its warrants? Can anyone enlighten me on this?

The "problem" with the warrant is that you can only convert it to mother share in 3 years time on 09 Dec 2016 as it is a European warrant. Based on the counter name TechOil&Gas eW161209, the "e" indicates that this is an european warrant unlike the American warrant where you can convert any time before the expiry date.

[Louhan]

Thanks for enlightening. No wonder there's this little "e" in the Warrant's name. But isn't there an "under-valuation" of the warrant, unless we are predicting that the mother share is going to drop to about 51 cents in 3 years' time? If so, those who are holding the mother share now should be disposing the mother share now (as the mother share is now about 69 cents)?

[ngcheeki]

Thanks for enlightening. No wonder there's this little "e" in the Warrant's name. But isn't there an "under-valuation" of the warrant, unless we are predicting that the mother share is going to drop to about 51 cents in 3 years' time? If so, those who are holding the mother share now should be disposing the mother share now (as the mother share is now about 69 cents)?

Yes, you're right about the "under-valuation" of the warrant compare to the current mother share price. But the performance of the Tech Oil&Gas has been poor for the last few quarters, based on the NAV of the 25.67 cents the current price of the mother share of 67 cents, the price to book of 2.6X is a bit too high. Unless the business is turned around in the next quarter, if not I expect the mother share price will go lower.

[Jacmar]

But isn't there an "under-valuation" of the warrant, unless we are predicting that the mother share is going to drop to about 51 cents in 3 years' time? If so, those who are holding the mother share now should be disposing the mother share now (as the mother share is now about 69 cents)?

The way to look at this is that you are paying a discount to the mother as your money is lock up for 3 yrs without any returns and of course warrants has even lower seniority vs mother share in terms of liquidation. all these assuming the market is price efficiently.

[Louhan]

Since my posting a few months ago, Technics Oil share price has gone up from 69 cents to 83 cents (14 cents up), but the warrants have only gone up from 26.5 cents to 36 cents (9.5 cents). Looks like the warrants have more to run up.

But isn't there an "under-valuation" of the warrant, unless we are predicting that the mother share is going to drop to about 51 cents in 3 years' time? If so, those who are holding the mother share now should be disposing the mother share now (as the mother share is now about 69 cents)?

The way to look at this is that you are paying a discount to the mother as your money is lock up for 3 yrs without any returns and of course warrants has even lower seniority vs mother share in terms of liquidation. all these assuming the market is price efficiently.

[Louhan]

Today the warrant reached a high of 41.5 cents. If we add the conversion cost of 25 cents, it is valuing the mother share at 66.5 cents, which is way below the market price of 86 cents for the mother share. Looks like very undervalued.

[butcher]

Technics is performing very well, its share price is still holding strong although company making losses while peers like swiber also in the oil and gas industry had fallen from grace and fell a lot.

[butcher]

Technics posted another year of losses of $6.7m compared to $10m losses for prior year which is an improvement.
However, cash level at $8.7 m vs $26m last year. Cash burn rate are high.
Taking a look at the cash flows statements, $92m spent on acquiring fixed assets while the group also generates more liquidity by getting receivables to settle faster [cash in flows of $6m] and delaying payments to payables [cash in flows of $5.5m].

It seems that Technics needs cash injection to continue operations. Perhaps another round of rights issues?

http://technics.listedcompany.com/newsro...MVB9.1.pdf

[butcher]

Just read Technics announced some statements by its auditors.

http://infopub.sgx.com/Apps?A=COW_CorpAn...a420c49a14

The statement quite long which are extracted for easy reading as follows:

The group incurred a net loss of $6,943,000 (2013: $10,049,000) during the reporting year ended 30 September 2014 and as at that date, the group’s current liabilities exceeded its current assets by $26,929,000. These factors indicate the existence of a material uncertainty that may cast significant doubt about the group’s ability to continue as a going concern.

At 30 September 2014, the group has breached certain banks’ financial covenants as disclosed in Note 25. However, the banks have granted waiver retrospectively to the reporting year ended 30 September 2014 in relation to the breach of financial covenants subsequent to the reporting year and have not requested for any immediate repayment up to date of waiver letters, 13 November 2014 and 16 December 2014 respectively. The directors are satisfied that the banking facilities from its bankers for its working capital requirements for the next twelve months will continue to be available as and when required.

Subsequent to the end of the reporting year, the group has entered into a non-binding memorandum of understanding with Y.H.H. Marine Engineering Pte. Ltd. in relation to the proposed disposal of 100% of the entire capital contribution of its subsidiary, Vina Offshore Engineering Co., Ltd to further reduce excess capacity and provide additional working capital.

The group is also exploring into sale and leaseback arrangements for one of its properties. Such sale and leaseback arrangements will enable the group to unlock the cash value in the property, while enabling the group to continue using the property for its existing operations. In addition, it will allow resources to be redeployed more efficiently towards supporting the existing businesses of the group as well as provide additional working capital. The proceeds from the sale could also be used for other funding requirements of the group including but not limited to repayment of borrowings.

After considering the measures taken described above, the group believes that it has adequate resources to continue its operations as a going concern. For these reasons, the group continues to adopt the going concern assumption in the preparation of the financial statements.

The financial statements do not include any adjustments that may result in the event that the group is unable to continue as a going concern. In the event that the group is unable to continue as a going concern, adjustments may have to be made to reflect the situation that assets may need to be realised other than in the amounts at which they are currently recorded in the statements of financial position. In addition, the group may have to provide for further liabilities that might arise and to reclassify non-current assets and liabilities as current assets and liabilities.”

The breaches of bank covenants referred to in Note 25 to the Company’s financial statements relate to the requirement to maintain the net tangible asset of a subsidiary by two financial institutions at the value of $9,000,000 and $8,000,000 respectively for bank facilities and short term borrowing of $500,000, which have not been met. The lenders have agreed after the end of the reporting year to waive the requirements. The borrowing is shown as a current liability in the financial statement.

http://infopub.sgx.com/FileOpen/Account_...eID=330949



Does it means Technics is in deep trouble and facing liquidity issues and threatens its operations and possibility of going bankrupt?