Results

In line: 9M13 PATMI increased 227% to a profit of RM39.8m, making up 72% and 73% of HLIB and consensus core earnings estimates, respectively.

Deviations

None.

Dividends

None.

Highlights

3Q13 revenue fell 9% yoy due to lower utilisation arising from mobilisation of new deliveries, upgrading vessels to meet the requirement for a long term contract and scheduled drydocking for a vessel. QoQ dropped as a result of higher mobilisation income recognised in 2Q in relation to the commencement of a long term contract secured.

Despite lower revenue, 2Q net income increased 2% YoY and 18% QoQ due to savings from the operating costs of old vessels forex gain and tax gain due to utilisation of unabsorbed capital allowances in subsidiaries companies.

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 12 vessels under long term contacts, which represents 80% 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.

Rating

BUY

Positives –

• Demand drivers improving.
• OSV supply relatively inelastic.

Negatives –

• Increased competition for growth markets.

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- 20 Nov 2013