News  Yesterday, PERISAI announced that its 51.0%-owned subsidiary, Intan Offshore Sdn Bhd had secured bareboat charter extensions for its OSV vessels (3 crew boats namely Sarah Gold, Sarah Jade and Bayu Pearl.) from Emas Offshore Pte Ltd.

 Value of the extension contract is c.USD3.7m implying DCR of USD5,000/day spanning two years.

 The contract is expected to expire on 31 August 2017.

Comments  This is not a surprise to us as the contract extensions on the OSV vessels contracted to Emas Offshore Ltd, which is indirectly owned by Ezra are usually exercised. PERISAI is also 23.4%-owned by Ezra Holdings Limited (Ezra) through its subsidiaries.

 The contract extension is deemed within our expectations as we have factored in RM40.0m revenue p.a. from its OSV division.

 Assuming USD:MYR of 3.50, the extension is expected to contribute c.RM6.5m (16.3% of total OSV division topline forecast) of revenue on an annualized basis. NP contribution is expected to be RM3.3m p.a based on 50.0% net margin assumption.

 This contract win is also on top of the group’s current longterm charter contracts with Emas Offshore for its other assets (2 AHT & 2 AHTS vessels) spanning up to 2017- 2021.

 We are largely NEUTRAL as it only reaffirms the continuation of earnings generated in its OSV division over the next two years.

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 Jackup (Perisai Pacific 102) which is scheduled for delivery in 2Q15.

 It is hopeful of securing a charter contract for the 2nd rig in 1H15 whereby it could help to 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.

Forecast  We maintain our forecasts as the contract is already accounted for.

Rating Maintain UNDERPERFORM

Valuation  Our Target Price is maintained at RM0.45 based on unchanged CY15 PER of 7.0x.

 We value the stock at the lower PER range of 7-10x of smallish O&G mid cap 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