Stock of the Day – ROC Oil (ROC)

ROC has takeover offer on the table from Fosun International Limited – A Hong Kong listed but Shanghai based Investment Company. The all-cash bid is set at $0.69/share. The investment thesis for ROC is therefore around whether another bidder could emerge in competition to Fosun, however our view is that this is unlikely with the Fosun bid a 6% premium to our Net Asset Value (NAV). If another bidder emerges for ROC, it could result in share price appreciation.



ROC Beibu Gulf Asset, Offshore China (Source – Company Reports)

ROC reported NPAT of $53.8m and underlying NPAT of $22.7m. The key reason for such a good result was a very low exploration expense and lower operating costs. Reported NPAT was boosted by the $32.6m profit booked on the sale of the Basker-Manta-Gummy gas fields earlier in the year. No dividend was declared as expected. Production guidance for 2014 was 8,500-9,500 BOE/day an increase on prior guidance thanks to the incorporation of the D35 acquisition in Malaysia.


ROC Portfolio (Source – Company Reports)

On 4^th August ROC announced it had received an all cash bid from Fosun International Limited (HK Listed, Shanghai based company) to acquire all shares in ROC for $0.69/share. This was deemed superior to the proposed nil-premium merger on the table at the time and was unanimously supported by the ROC board. The proposed merger with Horizon Oil has been cancelled. Next step is for Fosun to lodge a Bidder’s statement in early September with the offer to be open for 1 month.



ROC Daily Chart (Source – Thomson Reuters)
Key focus for investors is whether another bidder may emerge for ROC. Management has confirmed that the other conditional non-binding bid they had received previously was no longer on the table. Directors have unanimously recommended that the ROC shareholders accept the Fosun offer, in the absence of a superior proposal. We gave the BUY on the stock at the price of $0.465 on 08/02/2014. We recommend a SELL on the stock at the current price of $0.685.

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