News  Last week, PERISAI announced a proposal for 10% private placement exercise. At an indicative issue price of RM1.53/share, the exercise will raise cash proceeds of RM165.9m.

 Management guided that the placement exercise is to raise funds to pare down its debt and/or for capital investment for jackup drilling rigs and/or Mobile Offshore Production Units (MOPU).

Comments  We were not surprised by the announcement as we have earlier expected that PERISAI will look for additional equity funding given that: (i) the remaining 80% payment (c.RM520) for its first rig is due soon and (ii) it acquired a third jack-up drilling rig a month ago.

 The exercise will lift its share base to 1.19b shares from 1.08b and results in potential reduction in net gearing to 0.25x (vs. 0.7x at end FY12) and interest savings of around c.RM2m. However, this exercise will also lead to FY14 EPS dilutions of 7.4%.

Outlook  PERISAI’s 4Q13 results will be released some time end-Feb. We believe the results could be weak given that the E3 and MOPU are currently idle without contracts. Having said that, this is but just a blip to the earnings as FY14 features full-year FPSO’s contribution and half-year contribution of its 1st jack-up rig.

 According to management, both the E3 and MOPU Rubicone are bidding for domestic and international projects. Guidance is for both to see contract wins within the next 3-6 months.

 We believe PERISAI would be able to secure contracts for its soon-to-be-delivered rig given that there are at least 17 rig contracts that are expiring from mid-2013 to 2015.

Forecast  No change to our earnings estimates for FY13 pending the results announcement. However, we have tweaked our FY14 estimates slightly by 3.6% to account for a higher USD:RM exchange rate of RM3.25 (from RM2.91) in line with our inhouse economist’s view.

 As investors are now looking to end-CY15 for longer-term prospects of the oil and gas sector, we have introduced our FY15 net profit estimate of RM171.0m; which features: (i) fullyear utilisation E3, MOPU, FPSO and 1st jack-up rig and (ii) halfyear contribution of the 2nd jack-up rig.

Rating Upgrade to OUTPERFORM

Valuation  Our roll-forward TP based on 16x CY15 EPS is raised to RM2.53 (from RM1.63). Post the private placement, our TP is likely to be diluted by c.8% to RM2.32, which is still a healthy upside from hereon.

 The 16x PER is approximately at a 19%-discount to its 5-year +1.5 standard deviation (above its Forward PER mean) of 19.5x which we believe is justifiable given the uncertainties with regards to job wins for its MOPU division.

Risks to Our Call (i) Lower margins on assets; and (ii) Slower-than-expected job wins for assets.

Source: Kenanga