Perisai  reported  FY14  core  profit  of  MYR11.9m,  beating  our  MYR1.6m forecast  but in line with consensus at 100%.  However, we  continue to recommend  a  SELL  on  this  stock  with  a  higher  MYR0.51  TP  (from MYR0.35, 19% downside) based on a 50% discount to its BV/share. This is  because  we  remain  concerned  over  idle  assets,  potential impairments and its high gearing.

FY14 core profit of MYR11.9m.  Perisai  Petroleum Teknologi’s (Perisai)FY14  revenue  came  in  at  MYR122m,  up  9.4%  YoY.  63%  of  this  was contributed by its jack-up drilling rig, Perisai Pacific 101, which has been operational since 2H14. The rest of the income came from marine vessel charters,  which contributed MYR44.7m to  its  full-year revenue.  Perisai’s mobile  offshore  production  unit  (MOPU),  Rubicone  3,  as  well  as  its derrick  lay  barge  (DLB),  Enterprise  3,  continued  to  be  a  drag  on  its
earnings  as  it  reported  a  loss  before  tax  of  MYR57.3m.  Associate earnings jumped up 500% on the back of steady offshore support vessel (OSV)  charters  as  well  as  contributions  coming  in  from  the  floating production storage and offloading (FPSO) Kamelia.

Outlook.  We  remain  pessimistic  about  the  likelihood  of  its  two  idle assets getting a contract for FY15. Hence, we have not input any charter contracts for these two assets in our earnings forecasts. Perisai’s second jack-up  rig,  Perisai  Pacific  102,  will  be  delivered  in  2H15.  It  has  not received a contract  but  we are not discounting the possibility of the rig garnering  one as the delivery date gets closer. In the event that the two idle  assets  manage  to  secure  contracts,  this  will  provide  an  earnings boost to Perisai.

Maintain  SELL  with  a  TP  of  MYR0.51.  We  reiterate  our  SELL recommendation on the stock  with a TP of MYR0.51 (from MYR0.35) as we switch our valuation methodology  to one  based on 50%  discount to BV/share  from  P/E.  W e  believe  the  valuation  methodology  and  the discount  is justified,  given: i)  that  its two idle assets  are  dragging down earnings but still have value, ii) potential impairments and  write offs, and iii)  its  highly-geared  balance  sheet  at  1.13x  net  gearing  in  FY15F.Although earningsgrowth looks impressive, Perisai will be coming from a low base and valuations are still rich at this point, in our view.

Valuation. We are changing our valuation methodology to a P/BV  valuation as there are no earnings to be valued using P/E. We are pegging a 50% discount to Perisai’sBV/share,  which  we  believe  to  be  justified  given  that:  i)  its  two  idle  assets  are dragging down earnings but still have value, ii) potential impairments and write offs, and iii) its highly geared balance sheet at 1.13x net gearing in FY15F.

Source: RHB