Results

In line but below consensus: 1QFY14 PATAMI swung from profit to loss mainly due to losses from MOPU and E3 as both vessels had completed charter in 3Q13.

Deviations

Expect strong 2H due to contribution from jack up rig contract and E3. Thus, we expect the company to meet our FY14 earnings forecast of RM63.8m but may fall short of consensus’ forecast of RM80.9m.

Highlights

The weak 1Q result is within our expectation as mentioned in our previous report. This is due to the contract expiration on MOPU and E3 in Sep 13.

Currently, both vessels are idle with estimated burn rate of RM4m per month. We have assumed only 3 month contribution for MOPU and 6 months from E-3 in FY14. Recently, Perisai has secured US$158m contract for its first drilling rig. This translates to charter rate of US$144k per day which is in line with our assumption. The contribution from this new rig (expected to start contribution in 3Q14) will help to mitigate the weakness from MOPU and E3. Second and third rigs are expected to be delivered in the 2Q15 and 3Q16.

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 the 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

Maintained.

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 unchanged TP of RM1.87 (based on unchanged 14x FY/15 EPS of 13.4 sen/share).

Source: Hong Leong Investment Bank Research - 16 May 2014