News      Perdana Petroleum (“PERDANA”) announced yesterday that it was acquiring two 100-metre Accommodation Workbarges (Hull Number SK310 and SK311) at a price of USD29.5m (RM88.5m) each from Nam Cheong International Ltd (“NCIL”).

Cumulatively, the acquisitions are worth USD59m (RM177m) and they will be funded via internally generated funds and bank borrowings. 20% of the consideration price (RM35.4m) will be paid by deposit and the remaining upon the delivery of the vessels (expected by 1H2014).

Comments     We are pleasantly surprised by the news as we had expected that there would not be any more asset acquisitions after PERDANA’s old vessels rationalisation in Feb-13.

The two new vessels have similar specifications to the previous two bought (in Sep-12). As such, we believe that they are also being earmarked for the Pan Malaysian Hook-up and Commissioning Project that is supposedly to be awarded within the next two weeks.

The upfront RM35.4m is within the RM40.8m cash and cash equivalents balance of the group in Dec-12 although we believe the company will have to raise some borrowings as well. This could take its FY13-FY14 net gearing ratio to 0.57-0.58x (from 0.47x in FY12). However, we are not concerned as these vessels will likely be backed by contracts.

Outlook     A balanced offshore vessel mix will ensure it sufficient reach to the different segments of the O&G value chain.

Its relatively young asset fleet will also mitigate any contract replenishment risks.

Post the Dayang HUC contract win, we believe that almost all of Perdana’s vessels will be on long-term contracts (at least a two-year visibility).

Forecast     We are: 1) forecasting that the new vessels that will be operational in 2014 will be chartered out at Daily Charter Rates (DCR) of RM85k (still a discount to the DCRs of up to RM105k seen in recent times); and 2) fine-tuning our interest costs to accommodate the higher borrowings that we are anticipating in FY13-14. Overall, there is only a minimal change to our FY13E earnings but our FY14 net profit estimate has been raised by 10.3% to RM76.9m.

Rating      Maintain OUTPERFORM

Valuation     We maintain our target price of RM1.62, which is based on a targeted PER of 14.0x (in line with its 2-year historical average forward PER of 14.0x seen in 2007-2008) on its CY13 EPS of 11.4 sen. However, we are looking to roll forward the valuation to our FY14 EPS of 10.4 sen, which on the same PER, would imply a fair value of RM2.17. The stock could trade towards this valuation as longer-term investors start to plough into the stock, or post the HUC project win.

Risks     1) Lower than expected capacity utilisation charter rates and 2) the inability of Dayang to secure a sizeable portion of the Pan Malaysia contract.

Source: Kenanga