PERISAI’s 9M16 results were disappointing coupled with multiple impairments totalling up to RM292m on various vessels. Following massive impairment, its net gearing spiked up to 3.3x. In view of the absence of catalysts, continuous lacklustre performance, high financial risk as well as the lack of investment interests, we have decided to drop PERISAI from our core coverage.

9M16 below expectation. PERISAI recorded core net profit of RM0.4m in 9M16 which came in below expectations, accounting for 5%/8% of house/street’s FY16 full-year estimate. Our core net profit estimate is arrived after stripping off: (i) unrealised forex loss of RM8.7m, and (ii) multiple impairments totalling RM291.7m but including net loss of RM9.4m from discontinued operations. The negative deviation is largely due to weaker-than-expected contribution from its jack-up rig. No dividend was declared as expected.

Slid into the red. Sequentially, PERISAI recorded headline loss of RM293.3m in 3Q16. This includes: (i) RM89.3m impairment on its JV, (ii) RM92.2m impairment on its jack-up rig and OSVs, (iii) RM23.8m on its prepayment, (iv) share of impairment on JV (Perisai Kamelia) of RM54.0m, and (vi) RM32.3m on its MOPU which was classified as "asset held for sale". Stripping off these items, PERISAI recorded core net loss of RM4.9m in 3Q16, widening from the losses of RM1.4m in the previous quarter, no thanks to lower charter revenue from its jack-up rig. On a YoY basis, 3Q16 core net losses also worsened from RM1.8m in 3Q15 due to weaker charter revenue from jack-up rig and FPSO Kamelia. Cumulatively, its core net profit was also down 94% YoY from RM18.3m as a result of similar reasons as mentioned above as well.

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 contract is ending on 31 May 2017 with 12 monthly extension option. Meanwhile, PERISAI is facing liquidation risk as it defaulted on its SGD125m MTN, which was due in early October and subsequently been classified as a PN17-company. On 25 Nov, PERISAI filed an application to strike out the winding up petition served.

Ceasing coverage. In view of the absence of catalysts, the continuous lacklustre performance, high financial risk as well as the lack of investment interests, we have decided to drop PERISAI from our core coverage. Nonetheless, we are looking to continue monitoring and updating any developments if we see sufficient and meaningful inputs. Our previous call was UNDERPERFORM with a target price of RM0.05/share, pegging to 0.1x FY17 P/BV.

Source: Kenanga Research - 30 Nov 2016