News

• Perisai proposed private placement of up to 119.3m new share or approximately 10% of the existing issued and paid up share capital.

• Issue price will be determined and announced later.

• The proceeds will be utilised as repayment of bank borrowings and capital investments for jack up rigs and MOPU and working capital. Based on illustrative issue price of RM0.31 per placement share, Perisai is expected to raise circa RM37m. Financial Impact

• Assuming RM25m from the total proceed raised will be used to repay bank borrowing, we expect interest saving of RM0.8m per annum. Overall, the dilution impact to EPS for FY15 and FY16 is estimated around 3.6% and 7.5% respectively.

• Net gearing is expected to reduce slightly from 0.92x to 0.9x.

Pros/Cons

• We are neutral on the proposed private placement as this will strengthen the financial position but EPS dilutive.

• We remain cautious on the asset own company such as drilling rig and OSV due to continue pressure on charter and utilisation rate.

• At current rate of circa US$100k/day, EBITDA remain positive but in order to be P&L positive, we estimate utilisation rate need to be as high as 85%. If take into account the interest expense and principle repayment, cash flow is likely to be negative at current average charter rat e of US$100k/day.

• Worldwide newbuild orderbook is 130 units or 27% of existing fleet of 480 units. In order to adjust the oversupply situation, the industry needs higher level of scrapping activities.

• Given current soft market, Perisai has delayed the delivery of its 2nd rig from Aug 15 to 1Q16 which will provide more time to search for potential contract before delivery.

Risks

• Delay in contract award for MOPU and execution risk.

Forecasts

• Unchanged.

Catalysts

• Securing drilling contracts before rig delivery.
• New contracts for E3 and MOPU.

Valuation

Despite the recent share price rallied due to rebound in crude oil price, fundamental remained weak (pressure on charter and utilisation rate). Thus, we downgraded our call from HOLD to Sell with unchanged TP of RM0.30 based on unchanged 8x FY16 P/E.

Source: Hong Leong Investment Bank Research - 8 Oct 2015