News

Perisai announced that its wholly owned subsidiary, SJR Marine (L) Ltd has received a notice from TL Offshore dated 11 July 2013 for the extension of the charter of the Derrick Lay Barge, Enterprise 3 (E3).

The duration of the charter will extend for a fixed term from 1 July 2013 to 15 August 2013 and thereafter on a daily charter basis subject to a notice period of 21 days to precede the end of the charter. The daily charter rate for this extended term is US$60k a day (vs. US$63k a day previously).

Comment

E3 has been chartered to TL Offshore since 2008 with the main charter term ended on 30 June 2013. Despite the short extension period, we are not overly concerned. Recall that the corporate exercises with Ezra (announced 3 to 6 Dec 12) resulted in a 50% swap of Enterprise 3 (E3) pipe laying barge for a 51% stake in FPSO Lewek Arunothai is expected to completed in 3Q13. The partnership with Ezra is expected to enhance the potential of re-chartering E-3 to other clients.

Perisai will eventually sell the remaining stake in E3 to exit the pipe installation segment and focus on drilling and the FPSO operations. Hence, future growth is set to continue with the delivery of an FPSO in 2013, a pacific class 400m jack up rig in mid-2014 and the option on an additional rig in mid-2015. The FPSO and new rig businesses are expected to contribute 42% and 65% of total revenue in FY14 and FY15 respectively.

The recent increased interest in drilling rigs suggests huge opportunity especially for locally owned drilling rigs. Channel checks indicate a total of 8 drilling contracts (currently operated by foreign-owned rigs) are expected to expire in 2014, this will open up opportunity for locally owned rig. We believe Perisai will be one of the beneficiaries and market concerns about failure to secure contracts are overdone.

The impending UMW’s IPO in 2H13 could also drive sentiment and serve as a potential re-rating catalyst for drilling related stocks. We do not rule out the possibility of higher UMW O&G IPO valuations driving up the P/E multiple for drilling related stocks. We also like SapuraKencana (BUY) and Scomi Energy (HOLD due to recent strong share price rallied).

We continue to like Perisai’s strategy to ride on Petronas’ O&G asset localisation directive by securing long term charter contracts for O&G assets, building and commission the assets and chartering the operation to experienced operators like its rig operator KCA DEUTAG. KCA DEUTAG is one of the largest rig operators in the world.

Catalysts

• Securing drilling contracts before the rig delivery
• UMW’s IPO in 2H13 likely re-rate the drilling related companies
• Marginal oilfield win

Risks

Political risk, Execution risk.

Valuation

We maintain our BUY call with an unchanged TP of RM2.00 based on 16x FY/14 EPS of 12.5 sen/share.

Source:Hong Leong Investment Bank Research - 15 Jul 2013