Perdana  Petroleum’s  1HFY14  core  profit  of MYR42.9m came  in  line  at 47.1%/44.3%  of  our/consensus  estimates,  driven  by  higher  vessel utilisation  rates,  an  increase  in  the  number  of  vessels,  as  well  as favourable charter rates in  2QFY14.  We maintain our  earnings  forecast and reiterate our BUY call. Our FV is unchanged at MYR2.20, based on a 16x FY15F P/E, a slight premium to other OSV players in our universe.

Earnings within expectations.  Perdana Petroleum’s (Perdana) posted 1HFY14  revenue  of  MYR175.8m  (+36.9%  y-o-y),  supported  by  higher utilisation  rates  and  an  expansion  in  Perdana’s  fleet  to  17  working vessels  in  2Q14,  vs  14  in  2Q13.  On  a  quarterly  basis,  core  earnings came in at MYR22.6m, up  102.2% y-o-y and  11.1% q-o-q.  1HFY14  net core earnings of MYR42.9m came in at 47.1%/44.3% of our/consensus estimates.

Potential downward  revision in  charter rates  a non-issue.  Petronas chairman,  Tan  Sri  Shamsul  Azhar  Abbas,  recently  mentioned  the possibility  of  a  downward  revision  in  charter  rates  for  offshore  support vessels (OSVs)  in the domestic market due to an oversupply as well as Petronas’ aim to  keep costs  in check.  A potential downward revision in charter rates continues  to be a key risk for OSV players in the region,especially  given  the  current  trend  of  weakening  crude  oil  prices. However,  one of  Perdana’s  strong points is that most of  its  vessels are currently on long-term charters, ie  15 out of  its  17  vessels.  Hence, we believe  a  downward  rate  revision  in  the  near  to  medium  term  will  not have a major impact on Perdana. 

Maintain BUY with an unchanged MYR2.20 FV. We remain positive on Perdana as we believe it has  been doing  well  in  positioning  itself as a premium OSV player,  given:  i)  its  relatively young  and modern  fleet  with an average  age of about 4.5 years,  thus allowing it to command  higher charter  rates,  ii)  the  majority  of  its  vessels  are  on  long-term  charter contracts,  which  provide  earnings  visibility  along  with  a  buffer  against any  potential  downward  rate  revision,  and  iii)  its  ongoing  fleet modernisation as the company plans to spend  MYR300m capex to build 2-4  brownfield  assets  in  the  next  two  years.  Maintain  BUY  with  an unchanged  FV  of  MYR2.20,  based  on  a  16x  FY15F  P/E,  a  slightpremium to other OSV players as we deem Perdana a pure OSV playerwith a more superior fleet. 

Source: RHB