Period

1Q15

Actual vs. Expectations

1Q15 net profit of RM7.0m came below expectations, which only made up 9%/7% of house/street’s FY15 estimates.

The negative variance could be due to higher-thanexpected losses from its Rubicone MOPU and pipe-laying barge Enterprise 3 due to lack of contract for both assets.

Dividends

No dividends were declared as expected.

Key Results Highlights

1Q15 turned profitable to a net profit of RM7.0m from net loss of RM3.0m in 1Q14 due to: (i) commencement of drilling operations of its Jack-up Drilling Rig, Perisai 101 in Aug 2014, (ii) higher share of contributions from its 50.0%- owned FPSO Kamelia, and (iii) better marine earnings.

In 1Q15, core net profit plunged 28.3% QoQ due to: (i) weaker revenue from both Drilling and Marine divisions on seasonal factors, and (ii) higher interest cost. Drilling pretax margin was lower at 12.0% in 1Q15 compared to 13.2% in 4Q14 due to lower drilling revenue.

Outlook

PERISAI’s pipelay barge, E3 is still without a contract at the moment whilst Rubicone MOPU may see better opportunity only in 2H15. We believe it is unlikely for the group to secure any major contracts this year that can contribute significantly to FY15 earnings due to the still weak O&G industry outlook.

To-date, no contract has been secured for the 2nd Jack-up (Perisai Pacific 102) which is originally scheduled for delivery in 2Q15. The group has decided to delay the delivery of the asset until they can secure a firm drilling contract.

All in, earnings uncertainties remain in lieu of low visibility of contract awards for the group in the near-term while idle assets continue to burn cash and hit bottom-line.

Change to Forecasts

We have cut our FY15 forecast by 60.8% to RM30.1m by reducing both our utilisation rate assumption for Rubicone MOPU and Enterprise 3 from 50% to nil, as we believe it will take longer for the group to secure contracts. We have also removed our earnings assumption for the 2nd upcoming Jack-up rig due to the expectation of further delay in delivery due to lower prospect for a charter contract award.

FY16 forecast is reduced by 19.4% as we exclude contributions from the 2nd Jack up Rig (Pacific 102) to remain conservative in our forecast in view of uncertain timing of drilling contract award.

Rating

Upgraded to MARKET PERFORM from UNDERPERFORM.

Valuation

Target price is reduced to RM0.59 from RM0.69 previously post earnings cut based on lower 0.5x (from 0.6x previously) FY16 PBV multiple due to higher earnings uncertainty expected in the near-term.

Despite the cut in TP, we upgrade our stock rating as its share price has weakened significantly by c.14.0% since our last report. We believe the risk-reward ratio has improved for the stock with FY16E PBV at 0.5x, which is more than 1 SD below its mean multiple. Getting contracts for its idle assets will be the rerating catalysts for the stock.

Risks to Our Call

(i) weaker-than-expected on assets and (ii) inability to secure contract for its 2nd Jack Up unit.

Source: Kenanga Research - 14 May 2015