News

Perdana announced it has accepted a letter of award from Dayang Enterprise Sdn Bhd (DESB), for the supply of five workbarges and one workboat for the duration of five years with option of one year extension.

The contract will commencing in various stages staring from July 2013 and estimated contract value is RM705m.

Comment

We view the contract award positively and consistent with our assumptions. Although the daily charter rate is slightly lower than our forecasts, this is offset by 100% utilisation. The award is consistent with our view that Perdana will leverage their relationship with major shareholder Dayang’s (BUY), who recently won huge HUCC jobs, detailed in our report title” Full Horse Power to the North” dated 21 May 2013.

As detailed in our report dated 20 May 2013, we have been overly conservative on margins and hence forecasts. We maintain that FY13 numbers should actually improve after this contract, the slew of contracts awarded in Jan 13 detailed in our reports dated 07 Jan 13 and 08 Jan 13 and an additional contract we expect from Carigali. We thus tweak our margins assumptions to better reflect the higher utilisation rates.

We are still positive on the stock in view of additional catalysts of: capacity expansion, 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 22% and 10% to factor in the increased EBITDA margin (from 40% to 45%) to reflect the higher utilisation rates.

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 RM2.38 pegged at an unchanged 14x FY14 EPS of 17 sen/share based on our small cap O&G multiple.

Source: Hong Leong Investment Bank Research - 27 May 2013