We expect further selling pressure on PERISAI following its declaration of going into PN17 status. The company is still trying to negotiate with note holders on alternative solution with the new financing. Should the debt restructuring process fail, the note holders reserve the right to take legal actions against PERISAI. In view of higher insolvency risk, we keep our UNDERPERFORM rating on PERISAI with lower target price of RM0.05/share pegged to 0.1x CY17 PBV.

Entered PN17 status. Yesterday, PERISAI announced that the company has triggered the prescribed criteria of Practice Note 17 (PN17) following its insolvent status as a result of default in payment and principal of SGD125m MTN due on 3 October 2017. Following that, the company is required to comply with the followings; (i) submit a regularisation plan to the Securities Commission (SC) on whether such plan will result in significant change in business direction for approval and implement the plan within the timeframe stipulated by SC (announced whether the plan will result in change of business direction within 3 months), (ii) provide information from time to time and performed other things may be required by Bursa Malaysia, (iii) announce the status of its regularisation plan and the number of months to the end of 12 months, as may be applicable, on a monthly basis until further notice from Bursa Securities, and (iv) announce its compliance or non-compliance with a particular obligation imposed pursuant to PN17, on an immediate basis. In the event PERISAI fails to comply with the obligations to regularise its condition, the company’s listed securities will be suspended from trading on the 6th market day after the date of notification of suspension by Bursa Securities and de-listing procedures shall be taken against PERISAI, subject to the company’s right to appeal against the de-listing.

Still in discussion with new financing. Earlier on, PERISAI, together with its joint venture partner, Emas Offshore Limited (EOL) received an indicative offer of financing from a financial institution whereby part of it amounting to USD20m is earmarked for the note repayment. PERISAI is still trying to engage with note holders on alternative solution with the new financing. Meanwhile, we believe debt restructuring with its other creditors and financial institutions are needed. Should the debt restructuring process fail, the note holders reserve the right to take legal actions against PERISAI.

Poor earnings outlook. PERISAI’s earnings outlook is expected to stay weak due to idling assets. PERISAI’s jack-up rig contract is expiring in 2017 while its FPSO, Perisai Kamelia’s contract is ending on 31 May 2017 with 12 monthly extension options. No changes to our FY17-18 earnings forecasts in view of flattish oil prices outlook.

Reiterate UNDERPERFORM call with lower TP of RM0.05/share. Overall, we expect further selling pressure on the stock given its PN17 status with no near term re-rating catalysts. We maintain our UNDERPERFORM call with a lower target price of RM0.05 (from RM0.11 previously) as we peg it to lower 0.1x FY17 PBV. Note that our target price could be lower if PERISAI make further impairment on its idling asset at the end of the year. Upside risks to our call are: (i) new contracts for its Jack-up rig, (ii) renewal of its FPSO contract or redeploy to other fields, and (iii) successful restructuring of its debt

Source: Kenanga Research - 13 Oct 2016