Below expectations. Perdana's FY12 recurring net profit was below our expectation, making up 89.2% of our full year estimate. It posted a headline loss of RM3.7m in FY12 due to an impairment loss of RM27.7m on its legacy vessels. Management is likely to sell the vessels at a combined salvage value of RM10m-RM11m by end-1Q13 (the carrying value of the vessels on its books were RM38.3m as at 3Q2012). Perdana's revenue grew 1.4% y-o-y due to an improvement in vessel utilization and charter rates (average utilization was 77% in FY12 vs 73% in FY11) but down 14.0% q-o-q due to the monsoon season in the final quarter.

2013 prospects still bright. We maintain our view that the worst is over for the company and project its recurring net profit to grow by a whopping 110.9% y-o-y in FY13, supported by: i) the recovery in charter rates to USD1.8-USD2.2 per bhp, and ii) its long-term contracts, which make up 65% of its orderbook, providing stability to forward earnings.

Dayang to increase its stake further? Dayang, which recently upped its stake in Perdana to 20.4% in early Feb is likely to further beef up its holdings in the latter in preparation for the impending hook-up & commissioning (HUC) jobs in the Pan Malaysia cluster due to be awarded soon as it will need Perdana's vessels to carry out the HUC jobs. This could potentially re-rate Perdana's share price in the near term.

Upgrade to BUY. We are upgrading the stock to a BUY from NEUTRAL in view of the 10.4% upside to our valuation. We maintain our FV at RM1.27 (pegged to 13x PE), based on its 12-month forward earnings on the company's enlarged share base of 556.4m shares, assuming full conversion of its existing warrants. Excluding the full conversion of warrants, our FV moves up to RM1.43.

Source: OSK