Period  2Q14/1H14

Actual vs. Expectations Perisai Petroleum Teknologi’s (PERISAI) reported 2Q14 core net loss of RM0.4m, brought its 1H14 to a net loss of RM3.4m. While the result is a far cry from both our and consensus FY14 expectations of RM67.7m and RM65.9m, respectively; it was nonetheless expected given the absence of contributions from the MOPU Rubicone and E3, year-to-date.

 Our core net loss excludes one-off gain of RM1.4m recognised during the disposal of two cold-stacked vessels in 2Q.

 Earnings catch-up is expected only in 2H as its 1^st jack-up rig has already secured a contract.

Dividends  No dividends were declared as expected.

Key Results Highlights QoQ, the 2Q14 core net loss of RM0.4m compared to the net loss of RM3.0m in 1Q14 is largely due to better share of results in joint ventures.

 YoY, the 2Q14 net profit dropped by >100% from RM24.1m, while revenue also contracted by 66.3%. This decline in net profit was unsurprising due to lack of earnings from MOPU Rubicone and E3.

Outlook  PERISAI guided that chances of contributions from the E3 and Rubicone MOPU are slim for CY14, given that they had been unable to win anything thus far. Assuming any contract emerges within the 4Q, any contributions are only likely in CY15.

 Given that PERISAI has won a contract for its 1^st jack-up rig recently, the next win will only be in FY15 when the 2nd rig is delivered by mid-2015.

Change to Forecasts  Due to the slim possibility of contract wins, we have cut our FY14E net profit forecasts by 50.8% as we take out E3 and MOPU earnings contributions (we had earlier assumed four months revenue contribution). The cut is significant as PERISAI still has to account for the depreciation and interest of these non-revenue generating assets.

 We have also opted to trim our FY15E net profit forecast by 9.8% as we take a more conservative view on expected daily charter rates (to USD50k/day from c.USD60.7k/day previously ) and utilisation of the E3 in FY15 (50% in FY15 versus 100% previously).

Rating Maintain OUTPERFORM.

Valuation  Our forecast revisions led to a cut in our TP to RM2.01 (from RM2.22) based on an unchanged 16x CY15 EPS.

 The 16x PER ascribed 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