Results

Above Expectation: FY13 PATMI increased 156% to a profit of RM62m, making up 112% and 117% of HLIB and consensus core earnings estimates, respectively.

Deviations

Due to better margin as a result of savings from operating costs of old vessels.

Highlights

4Q13 revenue increase 22% yoy due to the commencement of a few long term contracts coupled with charter income generated from new deliveries. We believe this is related to the RM700m charter contract from Dayang.

Operating margin improved from 29% in 3Q13 to 37% in 4Q13 due to higher utilisation rate and savings from disposal of aging vessels. YoY, FY13 average vessel utilisation has improved from 77% to 80%.

Currently, the company has 14 vessels under long term contacts, which represents 82% of total fleet, enhancing its earning visibility. Another new work barge is expected to be delivered in Oct 14. In total, 8 work barges will be working for Dayang HUCC job.

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.

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 also understand that the Shell HUCC job might require more workbarges, which might benefit Perdana.

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

FY14 and FY15 earnings increased by 2% and 20% respectively after factored in cost saving from the disposal of aging vessels and full year contribution of new work barge in FY15.

Rating

BUY

Positives –

• Demand drivers improving.
• OSV supply relatively inelastic.

Negatives –

• Increased competition for growth markets.

Valuation

We upgraded our call from HOLD to BUY with TP raised from RM1.82 to RM2.18 pegged at an unchanged 14x FY15 EPS of 15.5 sen/share based on our small cap O&G multiple.

Source: Hong Leong Investment Bank Research - 26 Feb 2014