Results

In line: 1H13 PATMI swung from losses to a profit of RM24.3m, making up 44% and 45% of HLIB and consensus core earnings estimates, respectively.

Deviations

Expect stronger 2H due to contribution from the vessel supply to Dayang’s HUCC job.

Dividends

None.

Highlights

2Q13 revenue increased 6.5% yoy due to improvement in vessel utilisation and charter rates. QoQ increased 12% as 1Q is typically weak which was affected by monsoon season.

QoQ operating margin fell from 29% to 26% due to mobilisation cost for vessels under the new long term contracts and the scheduled drydocking cost for certain vessels and lower other income.

The company has consistently delivered earning since the inflection point in 2Q12, reaffirming our view that the OSV market is in a cyclical upswing as capacity overhang evaporates. Currently, the company has 11 vessels under long term contacts, which represents 73% of total fleet, enhancing its earning visibility.

Recall that Perdana has entered into MOA to purchase 3 new workbarges which are expected to take deliveries by 2014 with 2 of the vessels working for Dayang HUCC’s jobs. We understand that the Shell HUCC job might require more workbarges, which might benefit Perdana. Channel checks with drilling rig crew indicate that each drilling rig requires 3 OSVs to run smoothly and securing these OSVs is becoming difficult.

In addition, participation in HUCC jobs won by major shareholder Dayang (BUY) which is expected to mobilise in 2H13 will also boost profit. We are still positive on the stock in view of additional catalysts of: capacity expansion, 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

Unchanged pending contract 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 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 - 21 Aug 2013