Petra  Energy’s  FY14  core  profit  of  MYR23.1m  was  in  line  with  our estimate  at 102% but below consensus  at  only 82%. With the results in line, we leave our earnings forecasts unchanged but upgrade our rating to BUY, with our revised SOP-based TP of MYR1.93 (from MYR2.08, 21% upside)  premised on potential earnings surprise from a new RSC award as well as vessel spot charters from Petronas.

Core  profit  of MYR23.1m.  Petra  Energy’s  (Petra)  FY14  revenue  rose 29.6%  YoY  to  MYR638.6m.  82%  of  revenue  came  from  its  hook-up, commissioning and topside major maintenance (HuC/TSM) contract from Petronas Carigali,  which saw an increase in work orders. The rest  of the revenue was  contributed  by its marine offshore support services as  well as  its  fabrication  arm.  At  the  PBT  level,  HuC/TSM  contributed MYR26.4m and marine support  services  recorded  MYR3.8m. However, the fabrication segment still recorded a loss of MYR4.4m. Petra declared a DPS of 2 sen, in line with our estimate.

Outlook.  Petra’s HuC/TSM contract  should  keep the company busy up until  2018,  with  marine  support  services  providing  the  earnings  base. Petra was also awarded an umbrella contract for the provision of vessel spot charters by  Petronas Carigali from 2015 to 2017,  which will  be on a non-exclusive  and  call-out  basis.  We  believe  this  could  provide  a potential  earnings  surprise  for  Petra  going  forward.  The  Edge  Weeklyreported  that  Petra has obtained  another risk service contract (RSC) for the  PM9  block  in  offshore  Terengganu.  The  company  is  expected  to team  up  with  Coastal  Energy  (CEN  CN,  NR)  for  the  RSC.  Recall  that Petra and Coastal Energy are  joint venture (JV)  partners for the  KapalBanang-Meranti (KBM) cluster RSC.

Upgrade to BUY with new TP of MYR1.93.  With the results coming in line,  we  leave  our  earnings  estimates  unchanged  and  take  the opportunity to upgrade Petra to BUY  (from Neutral), with a revised SOPbased  TP  of  MYR1.93  (from  MYR2.08,  21%  upside),  with  a  10% discount on liquidity  premised on: i) earnings visibility from its HuC/TSM contract,  ii)  a  spot  charter  contract  from  Petronas  Carigali  providing  a potential  earnings surprise, and iii) possible PM9 RSC award  which we believe could re-rate the counter higher.

Valuation. We peg 10x P/E to Petra’s core business –  a lower multiple compared to Dayang Enterprise (DEHB MK, BUY, TP: MYR3.40) as we take into account its lower margins –  and DCF for its KBM cluster RSC. Due to Petra’s  illiquid shares, we are putting a 10% discount to the equity value and arrive at our TP of MYR1.93.

Source: RHB