Perdana  Enterprise  has  clinched  PETR’s  first  contract  for  an accommodation barge this year. Valued at MYR52m, the contract is for a  primary  term  of  two  years,  with  an  extension  option of  one  year.  We raise  our  FY14F/15F  EPS  by  9%  as  we  factor  in  this  favourable development and lower our tax assumption. Maintain NEUTRAL, with a higher FV of MYR2.10 (from MYR1.90).

Lands  MYR52m  contract.  Perdana  Petroleum  (PETR)’s  subsidiary, Intra Oil Services SB, has accepted a letter of award dated 17 Feb 2014 from  Ocean  Pro  Offshore  SB  for  the  charter  of  Perdana  Enterprise, which was previously on spot charter. The charter, which commenced on 24 Feb, carries a firm period of two years and an extension option of one year.  The  value  of  the  2-year  primary  term  is  worth  approximately MYR52m. It is worth noting that Ocean Pro, which  has over 20 years of experience in the offshore supply vessel (OSV) industry, is an exclusive agent  for  OSV  chartering  in  Malaysia  to  a  few  notable  vessel  asset owners (see Figure 1 for a list of its principals and clientele).  

Boost to our earnings forecast. Winning this contract is not a surprise as  we  have  assumed  the  continuity  of  Perdana  Enterprise’s charter  in our  forecast.  Nevertheless,  we  view  PETR’s  ability  to  replenish  its contracts  into  long-term  charters  as  a  positive.  While  we  had  earlier assumed the replenishment of contracts, we believe we had been overly conservative.  We  raise  our  FY14F/15F  EPS  by  9%  as:  i)  we  lift  our charter rate assumption for Perdana Enterprise by 10%, ii) lower our tax rate  assumption  to  4%  (from  7%),  and  iii)  marginally  raise  our  FY15 utilisation rate assumption to 86%.  

Maintain  NEUTRAL,  with  a  higher  MYR2.10  FV.  We  retain  our NEUTRAL  recommendation  on  the  stock,  with  our  FV  nudged  up  to MYR2.10 (from MYR1.90). We peg our FV at an unchanged 18x FY14F P/E given PETR’s position as a premium OSV play and a proxy to rising charter  demand.  The  key  catalysts  are  its  fleet  expansion  and  M&A activities.

Risks. These include: i) an increase in OSV supply, especially high-spec anchor handling tug supply (AHTS) vessels, which could dampen charter rates, and ii) volatile oil prices.

Source: RHB