News     Perdana Petroleum Bhd (“PERDANA”) announced last week that it had landed 5+1 year contracts for its accommodation vessels (five workbarges and one workboat) from  Dayang Enterprise Holdings Bhd (“DAYANG", OP, TP: RM5.80) 

The contracts commence in various stages starting from Jul-13 and are worth  approximately a cumulative RM705m.

Comments   We are not surprised by the news as we had expected any Hook-up and commissioning (HUC) news by DAYANG to be followed by a charter contract announcement by PERDANA. 

Based on an 80% utilisation, the contracted average daily charter rate (DCR) works out to around RM73.2k,  a discount to our average RM81.3-82.5k DCR that we have assumed for the vessels to be utilised by Dayang.

Despite the discount in the rates, we are, nonetheless, positive on the announcement as the contract means that all PERDANA's accommodation vessels are out for charter.

Outlook    PERDANA's balanced offshore vessel mix ensures that it is sufficient to reach to both the green and brownfield segments of the O&G value chain, which will enhance its contract replenishment chances.

PERDANA's relatively young asset fleet also mitigates its contract replenishment risks.

We estimate that around 62.5% of PERDANA's fleet to be on more than 3-year contracts with the remaining likely on spot or around 2-year contracts. As such,  to raise further its earnings growth, we will not surprise if  the company embarks on new asset acquisitions and M&As. 

Forecast    We have fine-tuned our estimates by factoring in a lower average DCR of around RM73.2k (from an  average of 81.3-82.5k) for PERDANA's vessels to DAYANG.

This has reduced our FY13-14 projections by 3.6% and 6.2% respectively.

Rating  Maintain OUTPERFORM

Valuation    Our target price has been lowered to  RM2.04 (from RM2.18) based on an unchanged target PER of 14.0x (in line with its 2-year historical average forward PER of 14.0x seen in 2007-2008) on its CY14 EPS of 14.6sen. 

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