News

Perdana announced that it has entered into MOA with Name Cheong for the acquisition of 2 units of 500-men accommodation work barges at a purchase value of US$84m or RM270m with an option for a further 2 units. The deliveries of the workbarges are expected in the 1Q and 2Q of 2016.

Financial impact

With assumption of US$33k charter rate per day and EBITDA margin of 74%, we expect one vessel to contribute RM15m to the company bottomline. We expect both vessels to increase FY16 earnings by 15%.

In near term, gross gearing will remain manageable at 1x level as the 20% upfront deposit will likely be financed by internal funds and operating cash flow while the rest is only due upon delivery. We expect gross gearing to fall from 1x to 0.7x in FY16 due to strong cash flow generation from existing long term charter contracts which provides room for further vessel acquisition.

Pros/Cons

We view the acquisitions positively and in line with our view that vessel acquisition is a fundamental catalyst. The increase in capacity will help the company take full advantage of the increasing demand for accommodation barge in the market due to maintenance jobs and EOR activities. The purchase price (US$42m) is premium to the work barges it bought on July 13 (US$29.5m) due to higher accommodation capacity of 500 men vs. 300 men previously.

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. While Perdana was retained as Shariah compliant in the just concluded May review, it could potentially be removed from the Shariah list 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.

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 as both vessels will only contribute in FY16.

Rating

BUY

Positives –

• Demand drivers improving.

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 Jun 2014