Period  2Q14/1H14

Actual vs. Expectations Perdana Petroleum (PERDANA) reported 2Q14 core net profit of RM23.9m which brought 1H14 core net profit to RM44.8m; coming in at 44.6% and 46.2% of our (RM100.4m) and consensus (RM96.9m) FY14 estimates, respectively.

 Our 1H14 core net profit forecast excludes unrealised forex gains of RM1.25m.

 We deem the results within expectations as we expect stronger 2H14 results on the back of full-quarter contribution of vessels chartered to Dayang Enterprise Bhd (DAYANG; OP; TP: RM4.82).

Dividends  No dividends were declared as expected.

Key Results Highlights QoQ, The core net profit was up 14.2% mainly due to better vessel utilisation and lower administrative and finance costs in 2Q14.

 YoY, net profit jumped by 81.3%, due to: (i) better utilisation and charter rates for its vessels due to the improvement in the OSV segment and (ii) earnings contribution from the new vessels which came in for Dayang since 2H13.

 YTD, 1H14 net profit increased to RM44.8m compared to RM24.3m in 1H13 (+84.6% YoY) thanks to better utilisation and charter rates for its vessels as mentioned above.

Outlook  Improvement in earnings prospects from 2Q14 onwards is expected, driven by full-quarter contribution of vessels chartered to DAYANG. PERDANA is due to receive one more vessel in end-14.

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

 Currently, only two vessels (two 5,000bhp AHTS) are on spot charters and PERDANA is confident of securing recurring contracts for such vessels given the OSV market up-cycle.

 Longer term prospects will hinge on PERDANA’s future fleet expansion and they have already ordered two accommodation workbarges in June, which will be delivered in 1Q-2QCY16. They have build-options for another two.

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

Rating Maintain OUTPERFORM.

Valuation  Our target price of RM2.47 is based on an unchanged target PER of 15.5x (in line with PERDANA’s +1.5 historical standard deviation forward level on top of its average mean from 2006 to 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