Period  3Q14/9M14

Actual vs. Expectations Perdana Petroleum (PERDANA) reported 3Q14 core net profit of RM28.2m; bringing 9M14 net profit to RM72.9m. This was within our (RM100.4m) and consensus’ (RM96.4m) net profit forecasts at 72.6% and 75.6% respectively.

 Our 9M14 core net profit forecast excludes unrealised forex gains of RM0.1m.

Dividends  PERDANA has surprisingly declared a DPS of 2.0sen in 3Q14.

Key Results Highlights QoQ, The core net profit was up 18.0% mainly due to better vessel utilisation and finance costs within the quarter.

 YoY, net profit jumped by 81.5%, due to: (i) better utilisation and charter rates for PERDANA’s vessels due to the improvement in the OSV segment and (ii) earnings contribution from the new vessels.

 YTD, 9M14 net profit increased by +100% due mainly to better utilisation and charter rates for its vessels as mentioned above.

Outlook  PERDANA has received another vessel in Oct-14 which we understand is targeted for Chemical Enhanced Oil Recovery (CEOR) work. However, assuming the CEOR does not go ahead there are other prospects as well.

 Medium-to-longer-term prospect is stable on the back of PERDANA’s long-term contracts (12 OSVs). By next year about 5 vessels (two 5k BHP; one 10k BHP AHTSs and 2 workboat/barges) will be up for charter renewals.

 Longer-term outlook will hinge on demand for PERDANA’s 500-men workbarges that will be delivered in 1-2Q16, which should enjoy strong demand.

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

Rating Maintain OUTPERFORM.

Valuation  In our view the oil and gas sector has undergone a derating in lieu of the uninspiring crude oil prices. Furthermore, the OSV segment should be most pressured given the heightened competition (as most of the OSV players have embarked on fleet renewals in the past 2 years). As such we are reducing our PER on the stock to 11x (from 14.5x).

 The ascribed PER of 11x is 1x above the 10x ascribed to Alam Maritim (MP; TP: RM1.84) mainly it has more longer-term contracts and its fleet-mix is skewed towards brownfield activities; which should be relatively unscathed by crude oil price downtrends.

 Our target price is thus reduced to RM1.61 (from RM2.31 previously).

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