News  Yesterday, PERISAI announced that a subsidiary had secured a Letter of Award from Petronas Carigali Sdn Bhd (PCSB) for the provision of it first jack-up drilling rig, the Perisai Pacific 101. The contract is for 3 years with actual operations to commence in mid-2014.

Comments  Whilst we are positive on the contract win, it is, nonetheless, expected given PERISAI is one of the few Malaysian players that have jack-up rigs; while there is a slew of jack-up rig contracts that are due for renewal, hence there are ample of opportunities for such players.

 We have already assumed 5-months contribution for the jack-up rig in FY14.

 No contract value was guided, but we believe it will not stray far from similar PCSB contracts of similar duration. Looking at UMW O&G’s contract for Naga 4, we believe the contract could be worth c.USD140-144k per day. This is marginally lower (by c.4%) from our estimated USD150k per day assumptions. However we believe PERISAI’s focus is on fostering relationships with Petronas and building track record for its jack-up rig fleet. Hence the discount to our assumptions is justifiable.

Outlook  PERISAI is set to announce its 1Q14 results on 15 May which we believe will be weak as both the E3 and MOPU Rubicone are still idle to-date, and this jack-up rig contract will only commence operations in Jun-July 2014.

 PERISAI guides it is still bidding for both domestic and international projects for E3 and its MOPU and hopes for contract wins over the next 3-6 months.

 Given PERISAI has won a contract for its 1st jack-up rig, the next will only be in FY15 where the 2nd rig will be delivered by mid-2015. Again, we foresee no issues for a contract win given that there are at least 17 rig contracts that are expiring from mid-2013 to 2015.

Forecast  As there have been no contracts awarded for both the E3 and Rubicone as yet, we are cutting the contributions for both the assets to 4 months (from 7 months previously) in FY14. We have left our assumptions for FY15 intact as we believe PERISAI should be able to win contracts by 3Q14.

 We have also fine-tuned our charter rates for the jack-up rig to USD144k as they are slightly below our initial USD150k DCR assumptions. However, this in total only causes a 3.1% reduction in net profits (as evidenced by the reduction in FY15 forecasts).

 Our FY14-15 net profit forecasts are thus downgraded by 31.4% and 3.1% respectively.

Rating Maintain OUTPERFORM

Valuation  Our new target price is RM2.22 (from RM2.32 previously) based on an unchanged 16x CY15 EPS. 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 justified given the uncertainties with regards to job bids in its MOPU division.

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

Source: Kenanga