News

DAYANG (MP; TP: RM2.73) has proposed to acquire 43.0m shares of PERDANA from Affin Hwang Asset Management Berhad for a consideration of RM66.6m (RM1.55/share).

This represents 5.74% interest in the stock, which will bring DAYANG’s stake to 35.5% from 29.8% previously; this will trigger the Mandatory General Offer (MGO) for the remaining shares that it does not own if Affin accepts the offer within 3 months of the offer as stipulated in the contract.

Comments

This is not unexpected by the market judging by their share prices run-up in recent months until their suspension yesterday.

Offer price of RM1.55/share implies a FY16E PER of 11.6x, close to its 2-year historical mean of 12.1x without accounting for potential synergies.

In the current market down-cycle whereby valuation multiple is depressed, the offer appears to be fair but may not compelling as it does not take into the account potential upside in the event of strong market recovery.

During good times with oil price at >USD100/bbl, PERDANA could trade up to 14x forward PER based on historical data, which could provide ample upside to the stock.

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 vessels 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 in the 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

We maintain our forecasts.

Rating

Upgraded to MARKET PERFORM from UNDERPERFORM

Valuation

Our Target Price is upgraded to RM1.55 from RM0.92 previously as we peg it to the offer price, which implies FY16 PER of 11.6x. On the other hand, we do not discount the possibility of higher MGO price given the potential long term synergies that DAYANG can realise with the acquisition.

Risks to Our Call

(i) Weaker than expected margins and (ii) Slower than expected recovery in OSV market

Source: Kenanga Research - 15 May 2015