News

Perisai announced that its wholly owned subsidiary Perisai Labuan has entered into a rig construction contract with PPL Shipyard, a subsidiary of Sembcorp Marine.

The value of the rig is US$211.5m. The contract price includes certain enhancements that had been undertaken over the Perisai Pacific 101 and Perisai Pacific 102.

Delivery is expected in 3Q16. The contract is 20% or US$42.3m payable upfront and an additional 80% upon delivery.

Comment

We are positive on the acquisition of an additional rig which will benefit from the shortage of locally owned rigs. As of Sept 2013, there are 16 jack-up rigs operating in Malaysia but only 2 are locally owned (Naga 3&4). Drilling into detail, 14 foreign jacks up rig contracts are expects to expire within 1-2 years with 3 in 2H2013, 4 in 1H2014, 5 in 2H2014 and 2 in 2015. Hence, we expect tender and contract award to accelerating in next 2 years.

With an assumption of daily charter rate of US$150k and net profit margin of 30%, we expect it to contribute ~RM50m to the company bottomline. However, the third rig will only contribute fully in FY17 given its delivery in 3Q16.

Perisai is a cheaper proxy to the drilling related stocks. Currently, Perisai is trading at 11.5x CY 15 P/E versus UMW Oil and Gas at 21x CY 15 P/E. We expect high UMW O&G valuation driving up the P/E multiple of drilling related stocks such as Perisai and Scomi Energy (BUY, TP:RM0.90)

Growth is set to continue with the delivery of an FPSO in 2013, a pacific class 400m jack up rig in mid-2014 and 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 given the third rigs will only delivery in 3Q2016.

Catalysts

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

Valuation

We upgraded our call from HOLD to BUY after we rolled forward our valuation to FY15. Hence, we raised our TP from RM1.49 to RM1.93 (based on unchanged 14x FY/15 EPS of 13.8 sen/share).

Source: Hong Leong Investment Bank Research- 2 Jan 2014