News

Perdana announced that its wholly-owned subsidiary Petra Offshore Ltd had on 22 July 2013 entered into a Memorandum of Agreements (MOA) with Nam Cheong International Ltd to acquire one unit of Accommodation/Work Vessel, SK312.

The vessels will cost US$29.5m, 20% is to be paid as deposit and the balance on delivery.

Targeted delivery date is 3Q14.

Comment

We view the acquisitions positively and in line with our view that vessel acquisition is a fundamental catalyst. The increase in capacity will help the company take full advantage of the offshore O&G upswing, detailed in our report titled ‘Evolution of an upswing’ dated 16 Apr 2013.

The purchase price is similar to the work barges it bought on 22 April 2013. Demand drivers for OSVs are still strong, increasing number of platforms, more repairs needed on aging infrastructure, increase in exploration and increase in drilling campaigns outlined in our Perdana initiation report dated 30 Oct 2012 are all still alive and kicking.

Channel checks with drilling rig crew indicate that each drilling rig requires 3 OSVs to run smoothly and securing these OSVs is becoming difficult.

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

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 an unchanged 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 - 24 Jul 2013