Fell back into core losses

Low Pan Malaysia HuC/TMM (Hook up, Commissioning and Top-side Major Maintenance) work orders and underutilised marine vessels continue to be the culprit of weaker revenue. Meanwhile, KBM RSC remains the pillar to minimize the adverse earnings impact from its bread and butter business. In view of the lacklustre results and outlook, we cut our 16/17/18E by 155.6%/66.4%/42.8% respectively. Downgrade to HOLD with lower TP of RM1.00.

Earnings dampener: low workflow and vessel utilisation

Following a PPE impairment charge of RM12.5m in 2Q16, PENB recognised RM12.5m impairment on trade receivable this quarter. Excluding impairments and RM0.9m forex losses, PENB fell back into the red at RM7.6m, bringing 9M16 losses to RM8.3m.

Weaker qoq results

Sequentially, revenue fell by 7.6% qoq to RM76.4m in 3Q16 impacted by lower vessels utilisation from marine segment while HuC work orders continue to show no sign of improvement. Associate line contributed by KBM RSC increased 43.7% qoq.

Market condition remains challenging

Offshore marine segment continues to be challenging which saw 9M16 average vessels utilisation fall to 35%. Meanwhile, associate contribution from KBM RSC continue to support the business which is currently producing 9,000 barrel/day subsequent to closing two wells in 2Q16 due to unfavourable oil price environment. Hence, in our FY17E assumption, RSC contribution is 22% lower yoy due to reason above. Current outstanding order book is at RM1.5bn with earnings visibility until 2018. As at 3Q16, the group turned into a net cash position of RM1.7m.

TP lowered to RM1.00

We now forecast a loss for 2016 given the: (i) weak 3Q16 results; (ii) slow down in HuC work orders. While we understand that secured HuC work orders for 2017 are looking more encouraging, macro environment will remain challenging. We cut our FY17-18E by 66.4% and 42.8% respectively. As such, our TP for PENB is now lower to RM1.00 (from RM1.48 previously) as we roll forward our valuation horizon to 2017. Downgrade to HOLD.

Source: Affin Hwang Research - 28 Nov 2016