Results

In line: 9H13 Core profit registered RM71m, making up 91% and 83% of HLIB and consensus full-year estimates, respectively. However, we considered the results to be in line as we expect 4QFY13 to register around RM7m profit vs. RM23m in 3QFY13 after E3 and MOPU expired in Sep13.

Deviations

None.

Dividends

None.

Highlights

YoY: Revenue increased slightly mainly due to strengthening of US dollar. Operating profit fell due to higher staff cost, cost of share options recognised under ESOS and additional financing cost occurred.

To recap, both E3 and MOPU contracts have expired in Sept 13, the company is exploring various opportunities for these two units. Recently, Upstream reported that Perisai has partnered with Talisman to bid for Block PM-9. This is positive as Perisai will be able to deploy the MOPU for this maturing oilfield if the partnership wins the tender. Currently, we have assumed 6 month idle period before re-chartering to other party, early than expected deployment will see upside risk on our earnings forecast.

On the E3, we understand the company has received strong charter inquiries from various clients. We also believe that the partnership with Ezra is expected to enhance the potential of re-chartering E3 to other clients. We have assumed no contribution from E3 for 4QFY13.

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 company expects to secure a drilling contract, 3-4 months before delivery, which will be in 1Q2014. The FPSO and new rig businesses are expected to contribute 55% and 71% of total earning in FY14 and FY15 respectively.

Risks

• Political risk.
• Execution risk.

Forecasts

Maintained.

Catalysts

• Securing drilling contracts before rig delivery.
• New contracts for E3 and MOPU.
• Expand into E&P segment.

Valuation

We downgraded our call from BUY to HOLD as current TP of RM1.49 (based on unchanged 14x FY/14 EPS of 10.6 sen/share) only provided 5% potential upside after recent share price rebound.

Source: Hong Leong Investment Bank Research - 14 Nov 2013