Period  1Q14

Actual vs. Expectations Perdana Petroleum (PERDANA) reported 1Q14 net profit of RM22.0m which is within our expectations at 21.9% of full-year forecast (RM100.4m) and 23.2% of consensus’ (RM94.7m).

Dividends  No dividends were declared as expected.

Key Results Highlights QoQ, net profit was up mere 3.3% mainly due to there being higher unrealised forex gains of c.RM3.6m in 4Q13 versus RM1.1m in 1Q; excluding that net profit was actually c.18.4% up and this is largely due to: (i) better overall vessel utilisation of 89% (versus 84% in 4Q13); (ii) continued mobilisation of new vessels for the long-term contracts from Dayang Enterprise (DAYANG, OP; TP: RM4.82) – one more vessel was mobilised in 1Q14; and (iii) better net margins as a result of costs savings from the disposal of its older units in 2013.

 YoY, PERDANA unsurprisingly locked in significant improvements (+98.4%), due to overall recovery of the OSV sector in 2013 coupled with the additional boost of the LT contract from DAYANG.

Outlook  Improvement in earnings prospects from 2Q14 onwards is expected as it features full-quarter contribution of vessels chartered to DAYANG, whilst in 4Q14 PERDANA awaits another vessel delivery.

 Medium-to-longer-term prospects are stable on the back of PERDANA’s long-term contracts (15 OSVs).

 Currently, only two vessels (two 5k BHP AHTSs) are on spot charters and PERDANA is confident of securing recurring contracts for such vessels given the OSV up-cycle.

 Longer-term prospects will hinge on PERDANA’s future fleet expansion which we believe management will broach soon. Management recently guided it will allocated c.RM300m capex for brownfield assets over the next 2 years.

Change to Forecasts As results are within expectations, we maintain our FY14-15E forecasts for now.

Rating Maintain OUTPERFORM.

Valuation  Our target price of RM2.47 based on an unchanged target PER of 15.5x (in line with PERDANA’s +1.5 historical standard deviation forward level seen on top of its average mean in 2006-2008) on CY15 EPS of 15.3 sen.

Risks to our call  (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