Highlight

The new accommodation barge, Perdana Resolute which was delivered in Feb 14 is ready to work by end of Apr 14. It is one of the accommodation barge charters for Dayang’s HUCC contract. To recap, Perdana has won RM700m contract for the supply of five work barges and one workboat for the duration of five years.

Total latest orderbook stands around RM1.4bn with 82% of total fleet under long term contract, enhancing its earning visibility. The acquisition of 3 lease vessels and disposal of aging OSVs will result in total RM20m cost savings. There are still four vessels under sales and leaseback arrangement. Acquisition of those vessels in future will further expand margin due to cost saving from lease expenses.

Perdana is currently shariah-compliant and should remain shariah for the upcoming review in May as the annual audit report will only be ready in June. Based on the FY13 financial figures, Perdana’s US dollar borrowing accounting for 44% of its assets with the risk of removal from syariah list.

The incoming 18th vessels, Perdana Emerald will be used to bid for the EOR project in St. Joseph fields. We understand the accommodation barge will be modified for chemical injection purpose. Others potential bidders are Petra Energy and Alam. There is more opportunity if the chemical injection vessel is successful implemented in St. Joseph given there is other potential EOR projects at Sabah and Sarawak.

Comment

We remain positive on the company given the 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 in view of the Government’s efforts to resuscitate domestic O&G production.

Perdana stand to be a main beneficiary from the maintenance job on aging platform and upcoming EOR projects due to increasing demand for accommodation barge. We estimate one additional barge to contribute around RM10m profit to the bottomline.

The recent listing of PACC Offshore Services Holdings (POSH) and the upcoming Icon Offshore are expected to drive interest and re-rate OSVs sector. 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 privatization.

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

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 - 24 Apr 2014