News

Perdana announced that its subsidiary, Intra Oil Services has won an LOA amounting to RM52m for the charter of 1 unit of accommodation barge from Ocean Pro Offshore.

The contract duration commenced on 24 Feb 14 and is for a period of 2 years 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. The contract win translate to US$22k/day, in line with our assumption.

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

Unchanged as we already factored in the contract renewal on the accommodation barge in our forecast.

Rating

BUY

Positives –

• Demand drivers improving.
• OSV supply relatively inelastic.

Negatives –

• Increased competition for growth markets.

Valuation

We maintained our BUY call with unchanged TP of 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 - 5 Mar 2014