PETR’s FY13 core net profit of MYR40m was in line with our but below street estimates,  at  105% and  75% of  the  respective forecasts.  Profits improved on the back of:  i) higher utilization, and ii)  a  younger vessel fleet.  We downgrade the stock to NEUTRAL, and maintain our MYR1.90 FV.  We believe the market acknowledges  PETR’s  earnings  quality and earnings arising from its synergistic long-term contracts with DEHB.

• FY13  a  year of earnings turnaround. PETR’s FY13 core net profit of MYR40m  was  in  line  with  our  estimates,  but  significantly  below consensus. The earnings turnaround was anchored by: i) higher revenue from the commencement of more long-term contracts, notably the work barges  with  major  shareholder  DEHB  (it  recorded  MYR26m  in  charter income  as  a  related  party  transaction  in  4Q13),  ii)  higher  average utilization rate (80% from 77% in FY12), iii) there was an impairment loss of  MYR28m  in  4Q12  mainly  arising  from  ageing  vessels,  and  iv)  cost savings from maintaining its old vessels in the current year.
• Higher  gearing  not  an  issue.  The  company’s  total  borrowings  of MYR573m resulted in its net gearing doubling  to 0.9x from 0.4x in FY12. We  are  still  comfortable  with  this  gearing,  since:  i)  it  is  still  below  the company’s comfortable gearing range of 1-2x, and ii) about 82%,  or 14 of the company’s  offshore supply vessels (OSV) are now on long-term charters. Moreover,  we  find that rate of  interest  on its borrowings  is  still favourable at ~3%, as these have a tenure >7 years, and MYR521m.
• Downgrade to NEUTRAL. Maintain MYR1.90 FV. The share price has surged 35% since Dec 2013 and is now trading at a 18x FY14F P/E. this is  at  a  premium  to  small-to-mid  O&G  companies’  15-16x.  We  believe investors  have  priced  in  PETR’s  position  as  a  premium  OSV  play,  as well as its earnings turnaround and earnings visibility. PETR is  currently in a  synergistic  business with shareholder  Dayang (DEHB), which may need 7-8 OSVs  to support the  latter’s  MYR4.2bn worth of hook-up and commissioning (HuC) contracts (for a period of 5+1 years). We believe that PETR  has room  to comfortably  acquire one or two  vessels a year.As  we  do  not  see  re-rating  catalysts  for  now,  we  keep  our  earnings forecasts.

Financial Exhibits

SWOT Analysis

Company Profile
Perdana Petroleum provides offshore Marine and Integrated Brown Field Services for the upstream oil & gas industry

Recommendation Chart

Source: RHB