Results

• Below Expectation: YoY, 1QFY15 PAT swung from losses to profit of RM7m, making up 10% of HLIB and consensus full year forecast.

Deviations

• Mainly due to higher finance cost and opex despite expectation of stronger 2HFY15 due to additional contribution from second rig.

Highlights

• YoY: 1QFY15 PAT swung from losses to profit of RM7m mainly due to its first drilling rig - Perisai Paci fic 101 commencing drilling operations in Aug 14 coupled with higher forex gain. QoQ: 1QFY15 PAT fell by 48% mainly due to higher finance cost and opex inccurred.

• Both MOPU and E-3 assets remain idle with estimated burn rate of RM3.3m per month. Given the correction in oil price, we foresee difficulty to secure contract for both vessel.

• Given the uncertainly on the timing to secure contracts for both assets, we now conservatively factored in no contribution in FY15 (versus 1 quarter of contribution in our previous assumption) and 50% utilisation rate for both assets in FY16. To note, successfully securing contract for both vessels in FY15 will serve as re-rating catalysts and boost earning signi ficantly with FY16 P/E at circa 5x if both vessels are fully utilised.

• Perisai will add its second and third rigs in 2Q15 and 3Q16. We also understand that Perisai has an option to delay delivery of the second rig if it fails to secure any contract.

• In view of Petronas capex cut (15-20%) and reduction in operational expenditure. Asset owners such as drilling, OSV and fabrication service providers will be negatively impacted. According to channel check, rig service providers started to see pressure on charter rate with average 5% to 15% reduction and number of new tender also dropped by 50%. Hence, we remain cautious on Perisai despite benefiting from localisation of rigs.

Risks

• Delay in contract award for MOPU and execution risk.

Forecasts

• FY15 and FY16 earnings were reduced by 25% and 16% respectively after take into account higher finance cost and opex as well as lower utilisation rate on MOPU and E-3.

Catalysts

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

Valuation

• We maintain our Hold call with TP adjusted from RM0.69 to RM0.58 based on unchanged 8x FY16 P/E (lower compared to peer at 10-11x due to uncertainty on MOPU and E-3) post earnings downgraded.

Source: Hong Leong Investment Bank Research - 14 May 2015