Results

• Below Expectation: 1QFY15 core PATAMI was flat YoY, making up 19% of HLIB and consensus full-year estimates respectively.

Deviations

• Due to slower orderbook recognition and lower contribution from its associate, Perdana Petroleum (lower utilisation rate of vessels).

Dividends

• None.

Highlights

• 1QFY15 revenue increased by 7% yoy due to higher value of work orders received and contribution from Bardegg Baronia job that was awarded in Nov14.

• Its associate Perdana registered lower cont ribution due to lower utilisation of Sovereign (workboat ) and Odyssey (workbarge) and 2 OSVs (Liberty and Enterprise) were offhire. Average utilisation for vessels has fallen from 89% in 1Q14 to 76% in 1Q15.

• In view of the lower oil price and cost cutting from E&P players, we expect further delay of Petronas’ RM1.4bn HUC contract in FY15 and only picking up in FY16.

• Latest orderbook is about RM3.8bn which will last at least until 2018 and Dayang is tendering RM800m contract. To note, we have assumed zero contract replenishment in FY15 and FY16, any contract win will provide upside to our forecasts.

Risks

• Political risk; Delays in contract disbursement; and Execution risk.

Forecasts

• FY15 and FY16 earnings reduced by 11% after factored in slower orderbook recognition and lower contribution from its associate, Perdana Petroleum given oil majors are cutting capex and opex amidst low oil price environment.

Rating

HOLD

Positives

• Solid track record and expertise in HUCC.
• Captive market for topside maintenance.

Negatives

• difficulties in sourcing O&G engineering talent.

Valuation

We maintain our HOLD call with TP adjusted from RM2.87 to RM2.55 based on unchanged 11x FY16 P/E post earning downgraded.

Source: Hong Leong Investment Bank Research - 26 May 2015