News  Perdana Petroleum Bhd (“PERDANA”) has announced a 2-for-5-bonus issue and around 222.6m additional shares will be issued assuming maximum warrants conversions.

 PERDANA’s rationale behind the proposed bonus issue is to: (i) reward the existing shareholders for their continued support and loyalty to PERDANA; and (ii) enhance the liquidity of the shares.

 PERDANA hopes to complete the proposed exercise by 4Q13.

Comments  We are pleasantly surprised and positive on the bonus issue as it will enhance the trading liquidity of the stock.

 Assuming the maximum scenario of new 222.6m shares issued, PERDANA’s share base will expand by 56.1% to 779.1m shares.

 We are keeping our fair value unchanged until the exercise is completed.

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  The bonus issue has no impact to our forecasts.

Rating   Maintain OUTPERFORM

Valuation  We maintain our target price to RM2.40 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