PPT’s proposed 10% private placement will mainly fund its investments in drilling rigs and/or MOPU.  This is no surprise since the company has ambitions  to  make  a  thrust  into  the  drilling  segment.  Maintain NEUTRAL,  with  an  unchanged  FV  MYR1.62,  as  we  believe  the  share price  now  adequately  reflects  PPT’s  earnings  growth  prospects.  The upside risks to our numbers lie in higher utilization of E3 and Rubicone.

• Private  placement  to  fund  investments.  PPT  announced  last  Friday that it will undertake a  private placement of  10%  of its shares, based on the  company’s  1.09bn  shares.  Approximately  63.8%  of  the  estimated proceeds of MYR165.9m will be used to repay bank borrowings and/or to be  used  as  capital  investment  for  its  drilling  rigs  and  mobile  offshore production units (MOPU). Some 27.1% of the funds will be used to cover operating expenses at its drilling and MOPU operations,  with the rest for the  group’s administrative expenses.  The proceeds are expected to be utilized within one year of the date of the placement, which has yet to be set.
• Proposal  not  surprising.  We  believe  this  will  be  the  first  of  a  few corporate exercises  PPT will embark on to support  its ambitious thrust into the drilling segment.  The company has  ordered  three Pacific Class 400-designed  jack-up  (JU)  drilling  rigs  from  Sembcorp  Marines’  (SMM SP, BUY, FV: SGD5.40) subsidiary, PPL Shipyard.  Each JU is  expected to be delivered by 2QFY14/2QFY15/3QFY16. We expect 80% of each of the  JUs  -  worth  USD212m  per  unit  -  to  be  funded  by  debt.  The placement  is  expected  to  dilute  our  FY14/FY15  estimated  EPS  by 8.9%/11.2%  respectively  as  well  as  reduce  the  company’s  gearing  to 0.25x from the existing 0.71x.
• Maintain NEUTRAL, with FV MYR1.62. We maintain our NEUTRAL call on  the  stock,  with  an  unchanged  FV  of  MYR1.62,  based  on  a  FY14 target P/E of 18x, at a hefty 44% discount to drilling assets owner, UMW Oil & Gas (UMWOG  MK, NR, FV: MYR3.43). This  is appropriate  since PPT  is  a  relatively  new  player  in  the  drilling  segment  compared  with UMWOG.  As  we  believe  the  share  price  now  fully  reflects  PPT’s earnings  growth  prospects,  we  make  no  changes  to  our  FY14/FY15 earnings  estimates.  The  potential  upside  lies  in  higher  utilization  of  its derrick  lay  barge,  Enterprise  3  (E3),  and  MOPU,  Rubicone.  We  have conservatively assumed an overall utilization of 50% for both vessels.  

Recommendation Chart

Source: RHB