Results

• Below Expectation: 1HFY15 profit achieved RM8.6m, only making up 17% of HLIB and consensus full year forecast.

Deviations

• Mainly due to discount rate given to its Perisai Pacific 101 rig. We estimate the daily charter rate has revised from US$144k to US$110k/day.

Highlights

• QoQ: 2QFY15 PATAMI fell by 77% mainly due to lower charter rate commands for its Perisai Pacific 101 rig. To recap, it has secured a 3 years fi rm charter contract worth US$158m from Petronas which translate to charter rate of US$144k/day. The current charter rate for jack up rigs is hovering around US$100-120k/day which has fallen by 20- 33% since middle of last year. Hence, we have revised our daily charter rate assumptions from US$144k/day to US$110k/day in FY16 onwards. We estimate EBITDA level remain positive at US$110k/day but PBT will be barely breakeven.

• In addition, given current soft market, we expect Perisai to delay the delivery of its 2nd rig from Aug15 to 1H16 which will provide more time to search for the potential contract before delivery.

• Both MOPU and E-3 assets remain idle since Sept13 with estimated burn rate of RM3.3m per month. Given the correction in oil price, we foresee difficulty to secure contract for both vessel. We have already assumed zero cont ribution from both vessel in FY15 and only assume 50% utilisation rate for MOPU in FY16 with E-3 likely to be disposed off by end of 4Q15.

• According to channel check, number of rigs in Malaysia have fell from 15 rigs in a year ago to 7-8 rigs currently. Hence, we remain cautious on Perisai and expect to see pressure from lower charter rate and utilisation.

Risks

• Delay in contract award for MOPU and execution risk.

Forecasts

• FY15 and FY16 earnings were reduced by 74% and 49% respectively after take into account lower charter rate assumptions for its jack up rigs

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 RM0.58 to RM0.30 based on unchanged 8x FY16 P/E post earnings downgraded.

Source: Hong Leong Investment Bank Research - 13 Aug 2015