News

Perdana announced that its subsidiary, Perdana Nautika have won an LOA amounting to RM50m for the charter of 1 unit of AHTS from Talisman Malaysia.

The contract duration commenced on 10 Dec 2013 is for a period of 1 year with extension option of an additional year.

Comment

The contract is in line with our expectations of higher utilisation rates steaming from a cyclical upturn in the OSV market based on an 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.

We believe the AHTS unit that was chartered out has capacity of around 10k BHP. Assuming utilisation rate of 85%, the RM50m contract translate to daily charter rate of US$2.2/bhp which is higher than our long term charter rate of US$2/bhp given its relative short contract duration. 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. 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

Unchanged.

Rating

HOLD

Positives –

• Demand drivers improving.
• OSV supply relatively inelastic.

Negatives –

• Increased competition for growth markets.

Valuation

As our current TP only provides 7% upside, we downgraded the stock from BUY to HOLD with unchanged TP of RM1.82 based on 14x FY15 EPS of 13 sen/share.

Source: Hong Leong Investment Bank Research - 20 Jan 2014