Excerpts from analyst's report

YanKe11.14Religare analyst: Yan Ke (left)

How asset acquisitions have transformed Giken Sakata into a highly cash generative onshore oil field play

Singapore-listed Giken Sakata (Bloomberg Ticker: GSS SP) has transformed into an onshore oil field play post its acquisition of Indonesian oil & gas assets via share acquisitions in Cepu Sakti Energy (CSE).

While GSS’s legacy business is precision machining and engineering, the listed company has now become primarily an Indonesia onshore oil field company due to its announced acquisitions.
sydneyyeung8.14Sydney Yeung, recently-appointed CEO of Giken Sakata. NextInsight file photo.The company’s initially acquired oil fields, named Dandangilo-Wonocolo and Tungkul, are located in Central Java and already producing oil.

CSE (via PT Ceput Sakti Energy, PT CSE) holds exclusive rights to cooperate in conducting operations for extracting oil from both fields and in return has the rights to 80% of revenue arising from oil produced, with the remaining 20% shared with local cooperatives (KUD/BUMD).

PT CSE, under GSS, later acquired additional fields, named Kawengan, Trembul, and Gabus.

Post-acquisition of CSE, GSS effectively owns 51% of CSE, and hence has a 41% economic interest in the oil produced from the oil fields via its CSE stake. A qualified professional report by the firm Senergy (a member of the Loyd’s Register Group) indicates that the fields have 1P and 2P gross reserves of 5.6 million barrels and 9.6 million barrels respectively.

Including the three most recently acquired fields, for which a Senergy report has yet to be released, we estimate additional 2P reserves based on our model assumptions. This implies estimated gross total 2P reserves of 23.8mmbls.

religare11.14S$0.51 target price with upside should additional fields be added

GSS has the following current sources of value; 1) the initial fields valued by Senergy and 2) the most recently acquired fields for which Senergy valuation reports have yet to be released and 3) GSS’s legacy precision machining business. 

We choose to use our own NPV valuation for #1 and #2, and value GSS’s legacy business on 5x 2015E PER. This results in a valuation of US$191m for GSS, which equates to S$0.51 per share.

Upside to our valuation could come from the acquisition of new fields for drilling, the release of Senergy valuation reports for GSS’s most recently acquired Kawengan, Trembul, and Gabus fields, and value unlocking of GSS’s legacy machining business through a sale.

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