News

Perdana announced that its subsidiary, Perdana Nautika has secured an extended one year contract for the supply of 1 unit of AHTS from Murphy Sabah/Sarawak Oil.

The extended charter will run from 27 Jun 14 for a period of 1 year until 26 Jun 15.

The extended contract is value at approximately RM30m.

Financial impact

We understand the AHTS is Petra Marathon with 12,240 bhp. The contract value translates to US$2.1 bhp/day which is in line with our assumption.

Pros/Cons

We are positive but not surprise on the contract extension. We maintain our view that Perdana will benefit from 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.

The recent share price weakness is due to the concern on the potential removal from shariah compliant list. However, we understand that Perdana should remain shariah for the upcoming review in May as the annual audit report will only be ready in June. However, it could potentially be removed from shariah in the Nov review. Any share price weakness due to shariah compliant issue is a good buying opportunity given that its solid fundamental remains intact.

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.

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.

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 - 22 May 2014