News

Perdana announced that the agreement to sell its 7 old vessels enbloc for US$3.5m has been terminated by PT Ninda Pratama Vriesindo (PT Ninda)

PT Ninda will forfeit its 10% deposit.

The disposal was expected to generate a saving on the operating cost of approximately RM10-12m per annum.

Comment

We view the cancelation’s impact on price as a non-event. on a separate note, its 1Q earnings is slated on 20 May 2013.

Although we did include the sale and thus cost savings into our forecasts for FY13 and beyond, core profit in 2H12 of RM27m (which makes up 49% of our FY13 net profit) suggests we have been overly conservative on margins and hence forecasts. FY13 numbers should actually improve after the slew of contracts awarded in Jan 13 detailed in our reports dated 07 Jan 13 and 08 Jan 13. In addition, participation in HUCC jobs won by major shareholder Dayang (BUY) and expected to mobilise in 2H13 will also boost profit.

In our sector report dated 21 Jan 2013, we picked Perdana as our top pick when it was at RM1.17. The share price then slid on election concerns which raised doubts among investors. In our subsequent report dated 6 Feb 2013, when Perdana was at RM1.03, we reiterated Perdana as our top BUY pick due to sector and company fundamentals. Our conviction was vindicated as price has appreciated by 65% since then (vs. FBM KLCI’s 9.6% performance during the same time).

We are still positive on the stock in view of additional catalysts of: consensus upgrade with higher core operating margins and higher utilisation from the HUCC contracts; M&A or even privatisation; and winning a marginal field.

Risks

Global recession hitting O&G price; Business and restructuring execution failure; and Increase in OSV supply

Forecasts

We increase our FY14 and FY15 EPS by 8% to factor in the new acquisition of Work Boats detailed in our report dated 24 Apr 2013 due to increasing clarity on HUCC wins.

Rating

BUY

• Positives –
  • Demand drivers improving, OSV supply relatively inelastic.
  • Earnings inflection as restructuring nears completion.
• Negatives –
  • Increased competition for growth markets.
  • Complexities of restructuring.

Valuation

Maintain BUY call with a higher TP of RM1.96 pegged at an unchanged 14x FY14 EPS of 14.1 sen/share based on our small cap O&G multiple.

However, although we remain positive about its share price performance, we now prefer Dayang (BUY) given the more direct exposure to HUCC.

Source: Hong Leong Investment Bank Research - 20 May 2013