Period  4Q14/FY14

Actual vs. Expectati ns  Perisai Petroleum Teknologi (PERISAI) reported 4Q14 net profit of RM9.8m, bringing its FY14 net profit to RM10.0m. Core net profit excludes one-off RM3.7m forex gain.

 The results were below our forecast (RM11.4m) at 87.7% but within consensus (RM9.7) at 97.0%.

 The negative variance could be due to higher-thanexpected losses from its Rubicone MOPU.

Dividends  No dividends were declared as expected.

Key Results Highlights  Core net profit in 4Q14 soared 339.2% QoQ due to: (i) increased drilling revenue contribution, (ii) higher JV earnings, and (iii) lower administration expenses.

 Net profit surged 1,525% in 4Q14 YoY mainly attributable to higher contribution from FPSO Kamelia and contribution of Perisai Pacific 101, its first jack up rig.

 In FY14, core net profit plunged 86.1% YoY due to its idle Rubicone MOPU and Enterprise 3, its derrick-lay barge, and higher interest cost.

Outlook  PERISAI’s pipelay barge, E3 is still without a contract at the moment whilst Rubicone MOPU might see better opportunity only in 2H15.

 To-date, no contract has been secured for the 2nd Jack-up (Perisai Pacific 102) which is scheduled for delivery in 2Q15.  It is hopeful of securing a charter contract for the 2nd rig in 1H15 which could help lift the earnings of the group this year.  All in, earnings uncertainties remain in lieu of possible delay in contract awards as oil majors plan to cut their CAPEX and OPEX this year amid the low crude oil price environment.

Change to Forecasts  We have tweaked our FY15E net profit to RM76.8m (+3.7%) from RM74.1m previously as we adjust our USD: MYR assumption upwards to 3.50 from 3.25 previously, inline with our in-house economics team’s forecast.

 Core net profit forecast amounting to RM116.7m is introduced based on: (i) full-year contribution from its 2nd Jack-up rig (DCR assumed: USD144k/day), (ii) 50% utilisation of MOPU as it is tough to secure a long-term contract as less appetite is expected for production assets from oil producers, and (iii) 35.5% group pre-tax margin assumption.

 We have not factored in any earnings contribution as market is expected to remain challenging for PERISAI with strong competition from its local peers which also own idle pipelaying vessels.

Rating Maintain UNDERPERFORM

Valuation  Target price tweaked marginally to RM0.45 from RM0.44 previously due to CY15 earnings change based on an unchanged 7.0x CY15 PER.

 We value the stock at lower range of 7-10x small mid cap O&G stocks’ down cycle valuation band due to significant amount of idling assets and high gearing.

Risks to Our Call  (i) Better margins on assets and (ii) Earlier-than-expected job wins for idle assets. 

Source: Kenanga