Period

3Q15/9M15

Actual vs. Expectations

3Q15 results came in below our expectations, but were broadly in line with consensus with an unexpected net loss of RM1.8m. This reduced 9M15 core net profit to RM6.9m which makes up 55.6% and 82.1% of our inhouse and street’s full-year estimates, respectively.

The negative variance could be due to higher-thanexpected operating expenses amid the challenging operating environment.

Dividends

No dividends were declared as expected.

Key Results Highlights

3Q15 results sank into a core net loss of RM1.8m from net profit of RM1.6m in the preceding quarter due to lower revenue contribution from drilling segment, which was partially offset by joint-venture contribution.

YoY, the core net loss was recorded in 3Q15 against a net profit of RM2.2m previously, due to higher costs incurred in the drilling segment despite higher revenue recognised.

On the other hand, its YTD 9M15 core net profit increased significantly to RM6.9m from RM0.2m underpinned by maiden contribution from its first jackup rig in 9M15 and higher JV earnings driven by higher profits from FPSO unit Perisai Kamelia. Meanwhile, its marine segment improved YoY in terms of topline and profitability which we believe is largely attributable to the strengthening of USD.

Outlook

PERISAI’s pipelay barge, E3 and MOPU, Rubicone are still idling without contracts and the company is still exploring opportunities. We believe this will continue to hit bottomline if the situation persists.

Its marine segment remained stable as all of the nine OSVs are on long-term charters until Aug 2017 except for one which has longer contract duration until Sep 2021.

In view of the prolonged slowdown in the exploration and development segment, the group has decided to delay the delivery of the second jack-up rig (Perisai Pacific 102) asset until they can secure a firm drilling contract.

Its FPSO unit, Perisai Kamelia, will see its 3-year contract running until Nov 2016 and the group is hopeful that it would 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 nearterm while the idle assets continue hitting the bottomline.

Change to Forecasts

We cut our FY15E/FY16E earnings forecasts by 39.3%/19.9% to RM7.5m/RM38.3m, as we revised our previous overly conservative depreciation assumptions with a shorter useful life for jack up rigs to 25 years from 30 years and for MOPU to 10 years from 15 years.

Rating

Maintain MARKET PERFORM

Valuation

TP is reduced to RM0.34 from RM0.45 previously as we peg it to a lower FY16E PBV of 0.3x (close to 2SD below 7-year mean) from 0.4x in view of weaker rig market and resumption of oil price downtrend.

Risks

(i) Larger-than-expected write down on assets and (ii) further weakening of jack-up rig market

Source: Kenanga Research - 24 Nov 2015