9M15 core earnings came in at only MYR3.1m, 47% of our and 36% of consensus estimates. Maintain NEUTRAL with a MYR0.31 TP (0% upside). Earlier profitability during the year was wiped out by higher interest expenses and reduced rates for Perisai’s first jack-up rig. Its outlook is muted at this juncture, as we think it would continue to face difficulties to charter out its second and third jack-up rigs.

Core earnings of MYR3.1m. Revenue wise, Perisai Petroleum Teknologi’s (Perisai) 9M15 came in 140% higher YoY, attributed to the full nine months operations of Perisai Pacific 101 (PP101), which started work in Aug 2014. Reported net profit skyrocketed, helped by the higher forex gain as well as higher contributions from its joint venture (JV) for Perisai Kamelia and its offshore support vessels (OSVs). Stripping out the gains reveals a disappointing and different set of results, as Perisai registered a net loss of MYR0.3m for the quarter. The loss came from a higher financing cost and the discount in the charter rate of PP101.

Outlook for Perisai. Perisai has negotiated with PPL Shipyard, a subsidiary of Sembcorp Marine (SMM SP, SELL, TP: SGD2.00), to delay the delivery of Perisai Pacific 102 (PP102) as the company has been unable to secure a contract for the second jack-up rig so far. We understand that the company is exploring opportunities presently in Malaysia as well as regionally. We believe it may be an uphill battle to charter PP102 in the current bearish oil market environment. Recall that its 51%-owned Perisai Kamelia is on the second year of its three year firm contract that comes with an option of an annual extension of up to three years. Perisai is currently in discussion with Hess Exploration & Production Malaysia BV (Hess) regarding the extension option for the North Malay Basin production asset.

Maintain NEUTRAL with a MYR0.31 TP. Our TP is premised on a 70% discount to Perisai’s FY16F BV/share, as two of its assets are idle and PP102 is still without a contract. We downgrade our FY15F/FY16F/FY17F earnings by 27%/67%/38% respectively on higher interest costs coming from its medium term notes (6.88% rate pa) and increased rig financing costs.

Private placement. Recall that Perisai proposed a private placement of 10% new shares and the company is currently in the midst of arranging the new shares issuance. Assuming the 10% of new shares is taken up, our fully diluted TP would be MYR0.25 to take into account the larger share base.

Valuation. Our TP of MYR0.31 is based on a 70% discount to Perisai’s BV per share. We believe the discount to its BV is justified, considering that assets are underutilised while incurring interest and parking fees. We offer an alternative valuation methodology in which we did a DCF on Perisai’s operational assets, Perisai Kamelia, PP101 and its seven OSVs. Our base case assumes that the Perisai Kamelia contract is not extended beyond 2016 and we arrive at a TP of MYR0.29 (a discount of 7% to our BV per share). Our bull case DCF assumes that Perisai Kamelia’s charter would be extended throughout its optional period of three more years and we arrive at a TP of MYR0.63. We have not imputed any earnings from PP102 or Perisai Pacific 103 (PP103) in our assumptions.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Perisai Petroleum Teknologi (Perisai) co-owns a fleet of nine offshore vessels, which include a floating storage and offloading (FSO) unit and a derrick lay barge (DLB). It also owns a mobile offshore production unit (MOPU) and three jack-up drilling rigs.

Recommendation Chart

Source: RHB Research - 24 Nov 2015