News

Perisai announced that its subsidiary has secured a Letter of Award from Petronas Carigali for the provision of the jack up drilling rig, Perisai Pacific 101.

The contract duration is for 3 years and expected to commence in the middle of 2014.

Hercules Offshore will act as the drilling operations and maintenance manager of the Perisai Pacific 101. To recap, Perisai Pacific 101 is able to drill as deep as 30,000 feet and operating in water depths up to 400 feet.

Comment

We are positive but not surprise that Perisai has secured a drilling contract. We understand that the daily charter rate should be slightly below US$150k/day given the long term contract duration of 3 years which is largely in line with our assumption.

Perisai is the second largest jack up rig providers in Malaysia with total 3 rigs expect to operate in FY16 (vs. UMW O&G 8 rigs). Given the robust drilling outlook with 14 foreign jacks up rigs contract to expire within 1-2 years, Perisai is well position to benefit from it.

Despite the uncertainty on the timing of securing contract for E3 and MOPU, we believe the market has underappreciate potential contributions from the producing and drilling assets (FPSO and Jack Up rigs, collectively to contribute 67% of earnings in FY15), which was masked by the absence of revenue from E3 and MOPU.

We advise long term investors to look beyond FY14 with better earnings to filter through in FY15. FY16 P/E expects to fall to 9x after third jack up rig starts to operate in 4QFY16.

Perisai is a cheaper proxy to drilling related stocks. Currently, Perisai is trading at 12x CY15 P/E vs. UMW Oil and Gas at 20x CY15 P/E. We deemed the huge discount to be unjustified and expect the valuation gap between UMW O&G and Perisai to narrow going forward, once Perisai dispose of E3 and secured a contract for MOPU.

Risks

Political risk. Execution risk.

Forecasts

Overall FY14 and FY15 EPS cut by 30% and 9% respectively after take into account longer idle period for MOPU (3 months contribution vs. 6 months previously) and 10% dilution from recent private placement.

Catalysts

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

Valuation

We maintained our BUY call with TP reduced from RM2.06 to RM1.87 (based on unchanged 14x of lowered FY/15 EPS of 13.4 sen/share).

Source: Hong Leong Investment Bank Research - 9 May 2014