News     Perdana Petroleum Bhd (“PERDANA”) announced that it had entered into a Memorandum of Agreement with Nam Cheong to acquire another accommodation/work barge vessel (“VESSEL”) at a contract sum of USD29.5m (RM91.5m).

The VESSEL is expected to be delivered by 3Q14. 

20% of the total purchase consideration would be paid as deposit and the balance of the total purchase consideration of USD23.6m (RM73.2m) shall be paid upon delivery of the vessel.

Comments    We are pleasantly surprised by the acquisition as we had earlier expected PERDANA to have completed its acquisition of such vessels. Apparently, there is still an ample opportunity for accommodation/work barges as guided by management.

We understand that the VESSEL is not contracted out yet, but we are certain that PERDANA must has a ready market to undertake the acquisition. 

Assuming a similar average daily charter rate (“DCR”) of RM73.2k for the VESSEL, the FY14E revenue will increase by a marginal 1.8%.

Outlook    Medium to long-term prospects are stable on the back of PERDANA’s long-term contracts. For its existing vessels, at least 10 are chartered till 2018-2019; and another 3 are up till 2014-2015. Only 4 vessels (1 accommodation barge and 3 AHTSs) are on spot charters which PERDANA is confident on securing recurring contracts.

The mobilisation for the vessels requires Dayang Enterprise (“DAYANG”; OP; TP:RM6.06) to kick-start with two vessels in Jul-13, two vessels in Aug-13 and two more in 1H14.

Longer-term prospects will hinge on PERDANA’s future fleet expansion.

Forecast    We have increased FY14E revenue by the additional one quarter of earnings from the VESSEL. 

We have also fine-tuned our FY14 estimates for higher EBIT margins of 30.8% (versus 26.6% previously) as: (i) we were too conservative on the margins for the accommodation barges; and (ii) we expect further cost savings (c.RM10m per annum) once PERDANA completes the disposal of 7 vessels within the current month. 

Margins for FY13 remain unchanged as the disposal will only take effect in the last quarter and we believe there will be some mobilisation costs incurred for the DAYANG vessels.

Overall, our revisions increase FY14E net profit by 17.6%. 

Rating  Maintain OUTPERFORM

Valuation     We therefore increase our target price to RM2.40 (from RM2.04) 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    (i) Lower than expected daily charter rates and utilisation rates; and (ii) sudden downturn in crude oil prices that could adversely impact the offshore oil and gas services industry.

Source: Kenanga