News

• Perisai has announced that Larizz and Hess had agreed to extend the firm charter duration (“Extension”).

• The Extension is for a period of six (6) months to 31 May 2017. At the end of the Extension, Hess Exploration and Production Malaysia B.V (“Hess”) may exercise its option to further extend the charter on a monthly basis for up to a total of twelve (12) months to 31 May 2018.

• The value of the Extension is expected to be in the range between US$32m and US$45m, depending on the daily average Brent crude oil price.

Financial Impact

• The contract win is no doubt a temporary boost for the company which is currently facing issue of free cash flow concerning debt repayment with major assets experiencing low utilisation.

• Implied DCR of the FPSO asset amounts to USD175, 342.5-246, 575/day, with our built-in assumptions in the model close to the lower range implied by the contract.

• Based on our calculations, the higher range of contract value of the extension is similar to the value seen in its previous original contract on FPSO Kamelia (worth USD272m spanning 3 years). Pros/Cons

• Delivery date for Perisai Pacific 103 has been further delayed to Oct 16 from Jul 16 as agreed with the shipyard. At this juncture, termination of rig delivery is high for the group given that it is on a tight budget now for survival.

• The group also possess the put option to dispose of remaining 50% stake in its currently loss-making E3 barge to EMAS offshore, which is agreed to be at US$40m, timely for the group under the current turbulence to repay its borrowings.

• Near term liquidity risk is a major concern for the group as its US$700m multicurrency medium term note is expiring on 3rd October 2016 while its free cash flow is not expected to match the payment of the long term debt.

Risks

• Asset risk with high cash burn rate;

• Prolonged low oil price; and

Forecasts

• Maintained.

Rating

HOLD

• Positives – Would be one of the first primary beneficiaries of oil price rally which would push the drilling markets into sustainable recovery.

• Negatives – Has multiple idle hard assets sitting on its books Rubicone MOPU & E3 barge).

Valuation

• We upgrade the stock to a Hold from Sell with TP maintained at RM0.225 pegged at 0.5x to FY16 BVPS. In our opinion, we believe that the discount on the group’s book value is sufficient to account for its near term cash flow risks and its valuation appears to have bottomed at this point of time.

Source: Hong Leong Investment Bank Research - 22 Aug 2016