TheStarOnline (Malaysia): Why is Shell Refining BHD's share price rising?: “Just before Shell started rising over the past one week, the Government of Singapore Investment Corp Pte Ltd (GIC) bought more shares in Shell, adding to its ownership of 5% in the company. GIC bought 31,400 shares in Shell on Sept 16 and 21.” (ShellNews.net)
BY C.S. TAN
Tuesday October 5, 2004
THE current roadshow for the initial public offering (IPO) of Thai Oil, stressing a higher valuation than Shell Refining Company Bhd's, is what's driving the share price of the latter, according to a fund manager.
This view is contrary to recent media reports that Shell's price was being fuelled by high oil prices. Those familiar with Shell say its profits hinge on refining profit margins and not the price of oil.
Shell reported a net profit of almost RM300mil, or earnings per share (EPS) of 99 sen, for the six months ended June 30; its annualised EPS would be about RM2 this year.
Shell rose 40 sen to RM8.25 yesterday, making it the day's fifth biggest gainer in absolute terms. The stock has moved up by close to RM1 since late last month.
Thai Oil, scheduled for a listing on the Stock Exchange of Thailand next week, started its roadshow in Hong Kong at the end of last month.
The Thai oil refiner is offering its shares at between six and seven times its earnings next year, which is 50% higher than Shell's; the latter is traded at only about four times its projected earnings this year.
Oil refiners throughout the region are enjoying bumper profits due to a shortage of refining capacity – no new refineries have been built since the Asian financial crisis six years ago.
Foreign media reports point to a fair valuation of Thai Oil, as shares in other regional oil refining companies are being traded at higher valuations.
China's Sinopec Zhenhai, for instance, is traded at a prospective price/earnings multiple of 11 times, while South Korea's S-Oil is traded at nine times. The reports did not mention Shell's comparatively low valuation.
Just before Shell started rising over the past one week, the Government of Singapore Investment Corp Pte Ltd (GIC) bought more shares in Shell, adding to its ownership of 5% in the company. GIC bought 31,400 shares in Shell on Sept 16 and 21.
The Employees Provident Fund (EPF) sold 1.4 million Shell shares in September and up till yesterday through its fund managers. It makes sense for the EPF to take some profits because even after the sales it still owns 28.8 million shares in the company.
The share sales follow a placement of Shell shares at RM6.45 each in July. Those who took up the placement are in a position to take profits now. However, GIC, which took up a large tranche at that time, has continued to add to its shareholding.
Shell's share price has now risen to levels not seen since the pre-Asian financial crisis years.