News

According to The Edge, DAYANG (UP; TP: RM1.74) will make a takeover offer soon to take PERDANA private.

In a filing with Bursa Malaysia yesterday, PERDANA said it had received a letter from DAYANG, which controls some 29.88% interest in the company, stating that it will be entering into a material corporate transaction involving PERDANA.

Both companies requested suspension of trading for their respective shares and structured warrants, with effect from 9am to 5pm today.

Comments

It is not a secret that DAYANG intends to take PERDANA private due to the more compelling valuation of PERDANA following the crude oil prices slump while synergistic benefits can also be achieved with PERDANA's fleet of vessels complementing DAYANG's HUC capability.

We believe the deal could put DAYANG in a better position to target a bigger slice of the next round of the Pan Malaysia HUC Umbrella contract (possibly worth RM10.0b) expected to be awarded in 2018-2019.

At last close, PERDANA is trading at 11.2 FY16E forward PER, which is considered fairly valued at the current market cycle.

We believe substantial debt rising by DAYANG to finance a takeover would be unlikely given that PERDANA is half its size based on market capitalization, which would bump up DAYANG's net gearing from close to zero to c.0.8x.

Therefore, we believe a share swap and cash deal is highly possible. We believe the offer from DAYANG must to be compelling enough for the deal to go through as the management of PERDANA who may not favour a takeover by DAYANG (due to possible loss of control) also owns a substantial stake in the company.

Outlook

PERDANA has taken delivery of Petra Emerald, a 300-pax accommodation barge in 4Q14. It will be replacing Petra Enterprise which is serving a multi-year contract running up to Feb-16. The latter will therefore be put-up for sale.

Out of its fleet of 17 vessels, only 4 vessels (Petra Frontier, Petra Ranger, Petra Horizon and Petra Liberty) are exposed to the spot charter market while the remaining are on long term charters spanning to 2018/2019.

PERDANA is likely to be the least exposed OSV player to renegotiation of rates by Petronas as it is already providing relatively low rates compared to its peers (c. DCR of USD1.9/bhp vs. USD2.2-2.3/bhp by other OSV players) given contracts were won pre-rebound cycle (i.e. 2013).

No further vessel additions are expected in FY15. The group will be saving resources for incoming deliveries of two higher-end 500-pax work barges scheduled to take place in 1Q16 and 2Q16, respectively.

Forecast

No changes to our forecast for now

Rating

Maintain UNDERPERFORM

Valuation

We keep both UNDERPERFORM rating and TP of RM0.92/share unchanged for now, pending an official announcement later.

The TP pegged to unchanged 9.0x target PER. This is in-line with small cap valuation range of (7-10x) in an industry down cycle.

Risks to Our Call

(i) Better margins on assets, and (ii) Earlier-than-expected job wins for idle assets.

Source: Kenanga Research - 14 May 2015