News

It was announced on Bursa Malaysia that PERISAI has agreed with Petronas Carigali (PCSB) and HESS to farm out the awarded contract by PCSB to HESS.

The Farm-Out commenced on 23rd Sep 2015 and shall continue for duration of 9 months, with an option to extend for a time period of up to one month.

Total contract value of the Farm-Out to HESS is c.USD26.9m while the asset assigned to the contract is the group’s first Jack-up rig, Perisai Pacific 101.

Comments

The announcement is neutral to the company as it is just a shift of client usage on the same asset which is already on a 3-year contract with Petronas Carigali.

By the end of the Farm-Out contract, the asset will be taken back by Petronas Carigali until the expiry of contract.

Estimated DCR implied by the contract is USD99,600/day, which is lower than USD110,000/day assumed in our model. We deemed this is still within our earnings expectations as the group has enjoyed higher DCR in 1Q15 before the revision in rates, thereby pushing the average DCR for the year higher.

While this does not affect the group, it painted a slightly bleaker picture for the local drilling scene as Petronas intends to cut its costs aggressively by even opting to farm out its contracted rigs, which indicates a tough environment for local drilling players to secure drilling contracts locally from Petronas at least for this year.

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 before end of this year. The group has decided to delay the delivery of the asset until they can secure a firm drilling contract.

Its FPSO unit, Perisai Kamelia, will see its 3-year contract running until Nov 16 and the group is hopeful that it could secure another year of extension on the 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.

Forecast

We maintain our forecasts for now.

Rating

Maintain OUTPERFORM

Valuation

Our Target Price is maintained at RM0.45, pegged to an unchanged CY16E PBV of 0.4x which is 2-SD below its 7-year’s mean. Despite material earnings risks, we believe the stock is undervalued significantly relative to its asset value and deserves a second look by long-term investors with higher risk appetite.

Risks to Our Call

(i) larger-than-expected write down on assets, and (ii) further weakening of Jack-up rig market

Source: Kenanga Research - 5 Oct 2015