Results

Inline Expectation: 1QFY14 PATAMI increased 98% YoY to a profit of RM22m, making up 23% of HLIB and consensus core earnings estimates, respectively.

Deviations

We deemed the result inline as we expect stronger quarter going forward due to full contribution from Petra Enterprise, Petra Protector and Perdana Resolute.

Highlights

1Q14 revenue increase 54% yoy and 12% QoQ due to improvement in vessel utilisation, charter rates and income generated from new deliveries. We believe the latter is related to increasing vessels that commenced works under the RM700m charter contract from Dayang.

YoY, gross margin improved from 31% to 46% due to traction in cost cutting measures and saving from the acquisition of 3 sales and leaseback vessels.

Currently, the company has 15 out of 18 vessels under long term contacts, which represents 83% of total fleet, enhancing its earning visibility. The company is looking to secure more long term charter for the remaining 2 vessels currently on sport charters. The new work barge, Perdana Emerald which will be delivered in Oct 14 is bidding for the EOR job at St Joseph field with contract duration of 2 years.

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.

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 - 23 May 2014