FocusTitan price tag 'reasonable' for S Korea’s Honam - analysts

19 July 2010 07:40  [Source: ICIS news]

By Nurluqman Suratman

SINGAPORE (ICIS news)--South Korean polymer producer Honam Petrochemical was able to get a reasonable price for its acquisition of Malaysian polyethylene (PE) major Titan Chemicals at more than seven times its earnings, analysts said on Monday.

Honam agreed on 16 July to buy 72.2%, or 1.25bn shares, of Titan from the Chao Group of Taiwan and investment group Permodalan Nasional Bhd for M$2.94bn ($910m) or at M$2.35/share.

The company expects to get full ownership of Titan by November, with a total investment of about $1.3bn, marking its first venture into the southeast Asian country.

“A lot of people think that the Titan deal is good for the company as the price is not too expensive,” said Kim Jae Joong, an analyst with brokerage Woori Investments and Securities in Seoul.

“When you compare the total cost of the deal to the olefin production capacity of Titan, you will get around Korean won (W) 1.3m/tonne ($1,068/tonne), much higher than the W700,000/tonne you see on average at other Korean producers,” Kim said.

Honam produces synthetic resins, basic petrochemicals, basic chemicals and performance polymers, and has an ethylene capacity of 1.75m tonnes/year.

Titan, an integrated olefins and polyolefins producer, runs a 285,000 tonne/year No 1 cracker and a 435,000 tonne/year No 2 cracker at Pasir Gudang, Malaysia.

In Indonesia, Titan has a polyethylene capacity of 450,000 tonnes/year, which was included in the sale to Honam.

The Malaysian company would likely post a flat earnings per share (EPS) of M$0.31 this year, analysts said, although the first six months saw its net profit slump 45% to M$172.6m due to poor margins. In 2009, the company posted a net profit of M$237.8m with revenues at M$5.6bn ($1.73bn).

The acquisition of Titan would help Honam tap into the southeast Asian market, where demand for petrochemicals was booming, said Lee Hee-Cheol, an analyst with brokerage firm Hi Investment & Securities.

“[Honam is] going to look at further changes, and may contact other petrochemical producers in southeast Asia to see how they can work with them through Titan,” said Kim of Woori Investments.

Honam was also eyeing potential acquisitions in the Middle East as part of its effort to build up its global presence, analysts said.

Titan would start contributing to Honam’s bottom line by the end of January in 2011, said Lee of Hi Investment & Securities.

Based on a consensus forecast from analysts, Honam would register W210bn in operating profit in the second quarter, down from W246bn due to weaker chemical prices.

Honam is to announce its financial results in mid-August.

 ($1= €0.77/$1=W1,217/$1 = M$3.23)

Read John Richardson and Malini Hariharan’s Asian Chemical Connections blog
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By: Nurluqman Suratman

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