Sim Siang Choon (KimEng)

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Background: Sim Siang Choon (SSC) is best known as a retailer and distributor of sanitary hardware and fixtures used in bathrooms, toilets and kitchens. Jit Sun Investments, the private investment arm of the Lee Family that runs Ezra Holdings, owns a 35.2% stake in SSC, which it purchased for $10m last year. SSC has ventured into the oil and gas exploration and production (E&P) segment with the purchase of Interlink Petroleum Limited (IPL).

Recent development: SSC’s management recently outlined its plans for the company. These include raising new capital and changing the company’s name to that of its E&P subsidiary, Loyz Oil. SSC also intends to sell off its sanitary hardware business.

Key ratios…

Price-to-earnings: 47.1x

Price-to-NTA: 2.4x

Dividend per share / yield: $0.003 / 1.0%

Net cash/(debt) per share: $0.021

Net cash as % of market cap: 4.7%

Share price S$0.455

Issued shares (m) 266.5

Market cap (S$m) 121.3

Free float (%) 13

Recent fundraising Nil

Financial YE June 30

Major shareholders Jit Sun Investments – 35.2%

YTD change 0.0%

52-wk price range S$0.175-0.60

Our view:

Foray starts with IPL. IPL, an Indian oil and gas exploration company, was injected into SSC last year. Its main assets are two oilfields in Gujarat, India. However, the size of the reserve is as yet not fully determined, as SSC is in the process of evaluating it.

Casting its net wider. SSC is also on the lookout for more concessions to acquire, mainly in the Australasian region. It has tied up with a company called Rex Oil & Gas, which has proprietary technologies that may reduce exploration risks and costs.

New shares to fund ambitions. To fund its E&P activities, SSC has proposed to raise $12m through the issuance of redeemable exchangeable preference shares, which are convertible to 30m new SSC shares (a dilution of 11.3%) at 40 cents per share. This proposal is subject to shareholders’ approval at an EGM scheduled for 25 July 2011.

Some way to go. While the rationale for venturing into E&P is sound with the growing demand for oil, SSC has some way to go to establish itself as a credible player in the market. With its sharp 122% price rise over the past 12 months and a P/B of 2.4x, the market certainly has put a lot of faith in its new direction, especially with its parentage.