Earnings inflection already hit in 3Q19 with reported profit of RM18m as the multi-year restructuring is finally bearing fruits. With the structural shift in the offshore support vessel (OSV) market, PERDANA is expected to reap on the full benefit from the cyclical upswing, which is particularly more pertinent for PERDANA businesses given the increase of work orders from Maintenance, Construction and Modifications Contract (“MCM”) and Pan Hook-up and Commissioning Contracts (“Pan HUC”), leveraging on the strategic partnership with DAYANG (major shareholder: 61%). Meanwhile, PERDANA has completed a fundraising exercise that has substantially reduced its debt load (with ~RM31m interest savings). Based on its post restructuring pro-forma BVPS of RM0.41, the stock is now trading at PBV of 1.13x, 23% below its peers. Technically, PERDANA is ripe for further rebound towards RM0.52-0.565 levels (upward channel projection), pending an ascending triangle breakout.

Bright industry outlook. With various project portfolios scheduled in the future, Frost & Sullivan foresee steady growth in drilling, production support, marine vessels, as well as commissioning and decommissioning activities in 2020 due to the vast opportunities in Malaysian waters. In 2020, there are 37 subsea facilities and wells would be decommissioned, while it could further increase to 54 wells are to be abandoned in the pipeline in 2021. For HUC activities, approx. 4.6 million man-hours are expected in 2020 and 5.6-7.3 million man-hours in 2021. Meanwhile, the recent Petronas Activity Outlook report suggested 30-40% higher demand for OSV, which ties in with the need to have more exploration and production activity globally to arrest declining production growth.

A new lease of life. PERDANA has just completed a rights issue proposal involving the issuance of 1.46bn Redeemable Convertible Preference Shares (RCPS) at RM0.325 (2 RCPS for every 1 existing ordinary) on 8 Jan 2020. The fund-raising activity (with total proceeds of RM475m) represents part of a group-wide debt restructuring exercise. On a pro-forma basis, this would have cut its gearing from ~1.1x (as of end-Sep 2019) to 0.2x post-the rights issue exercise. Overall, its bottomline is expected to get a lift from: (a) interest savings (~RM31m) following the debt settlement and (b) higher vessel utilisation rate, which has increased from 79% in 2Q19 to 91% in 3Q19.

Pending an ascending triangle breakout. The stock has been trading within its upward channel from the RM0.25 (28 May) low. With prices trading above major SMAs, higher prices are likely in the short term as technical indicators are on the mend. We expect prices to break above the immediate neckline resistance at RM0.48.

A successful breakout will spur prices higher towards RM0.52 (76.4% FR) before heading higher towards its our LT objective at RM0.565 (upper channel line). Key supports are RM0.45 (30-d SMA) and RM0.44 (immeidate support trendline). Cut loss at RM0.42.

Source: Hong Leong Investment Bank Research - 10 Feb 2020