News

PERISAI has proposed to undertake a 10% private placement to 3rd party investors amounting to c.RM37m (assuming issue price of RM0.31/share representing discount of 10% to 5-day’s VWAMP of its shares).

Proceeds raised from the placement will be utilised for several purposes; (i) repayment of bank borrowings, (ii) CAPEX for upcoming Jack-up rig, and (iii) working capital.

Subject to approval from Bursa, the completion for the proposal is expected to be by 2Q16.

Comments

While the issue price could be much more favourable in better times of the industry where oil price recovery is sustianable, we believe it is a necessary move by the group given its relatively high gearing and uncertainty in near-term cashflow amidst uncertain O&G environment.

This will give it more breathing space to sail through the turbulent times in the industry, ensuring its balance sheet remains healthy while awaiting recovery in the sector. It will also provide extra cash infusion into the group preparing it for CAPEX due in 1H16 when its 2nd Jack-up rig is due to be delivered.

Changes to its net gearing would not be significant, which is expected to remain relatively unchanged in FY16 at 1.4x. On the other hand, dilution in EPS is expected to be 10% diluted post completion of the placement.

Overall, we are neutral to the announcement as its nearterm earnings’ prospect remains weak.

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 was originally scheduled for delivery before end of this year. The group has decided to delay the delivery of the asset to 31st March 2016 in view of weak rig market.

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.

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. However, FY16 per share numbers are adjusted for the private placement.

Rating

Downgraded to MARKET PERFORM from OUTPERFORM. Risk-reward ratio has become less attractive post yesterday’s share price’s surge.

Valuation

Our Target Price is reduced to RM0.42 from RM0.45, pegged to an unchanged CY16E PBV of 0.4x (which is 2 - SD below its 7-year’s mean) post adjustments accounting for dilution in private placement.

Risks to Our Call

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

Source: Kenanga Research - 8 Oct 2015