News

Perdana announced that its wholly-owned subsidiary, Intra Oil Services had recently received from Alam Maritim an extension of the contract for provision of one unit of workboat for a period of one year completing on 8 Oct 2014.

The contract value is approximately RM28.5m and expected to contribute positively to the financial results for FY13 and FY14.

Comment

The extension is in line with our expectations of higher utilisation rates steaming from a cyclical upturn in the OSV market based on increase in offshore O&G work which in turn flows from Petronas’ 5 year RM300bn CAPEX investment as the Government tries to resuscitated domestic O&G production.

The contract value translates to US$24.4k/day which is close to our assumptions of US$25k/day.

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.

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
• Increase in OSV supply

Forecasts

No impact to forecast.

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

Source: Hong Leong Investment Bank Research - 31 Oct 2013