• Keep BUY and MYR2.95 TP, 33% upside with c.2% FY24F yield. We are positive on Perdana Petroleum’s (PETR MK, NR) contract wins (Dayang Enterprise owns 64% of the former) – which should provide earnings visibility in the upcoming quarters. We believe PETR’s marine segment is likely to deliver stable earnings growth, backed by better utilisation and higher daily vessel charter rates. We continue to favour Dayang, which is a key beneficiary of an increase in upstream maintenance activities and robust OSV demand, even while it remains relevant in the new contract lifecycle.

• Yesterday, Dayang’s 64%-owned PETR announced that it won five contract awards – four contract extensions (on three anchor handling tug supply (AHTS) vessels and 1 accommodation work barge or AWB) and one new AHTS contract granted by Petronas Carigali. The total duration of the contracts ranges from 140 days to 271 days, effective either from Nov 2023 or January this year. The value of these contracts range from MYR8.3m to MYR19.8m.

• We are positive on these contract awards as they ensure earnings visibility for the coming quarters. We were guided that the implied daily charter rates of MYR33-72k point to a mild improvement from that of previous contracts. We think that these rates are still lower than that of current spot charters which generally pencil in slightly shorter timeframes. Management still sees potential improvement in daily charter rates this year due to tight vessel supply.

• PETR aims for a 65-70% utilisation rate. Its outstanding orderbook stood at MYR250m as of Dec 2023. Meanwhile, 14 out of PETR’s 15 vessels have secured contracts that last 1-9 months. As of 22 Feb, 10 vessels are already on hire and 14 vessels will be on hire (effective mid-March). PETR expects to achieve a 65-70% vessel utilisation rate in FY24 (FY23: 58%) and is targeting to lock in some long-term contracts to ensure long-term earnings visibility. Some of these contracts are expected to be awarded by 2Q24.

• We make no change to our earnings estimates as we deem these contract wins to be within our assumptions (63-65% utilisation for the marine segment in FY24-25F). As such, our TP remains at MYR2.95, pegged to 16x FY24F P/E (+2SD from the 5-year mean) with a 6% ESG discount applied, based on Dayang’s ESG score of 2.7 out of 4. Such a valuation is to factor in better prospects of tender wins, and a potentially longer tenure for the new round of maintenance, construction & modification or MCM and hook-up & commissioning or HUC contracts.

• Downside risks: Slowdown in new work orders, weaker oil prices, and higher operating costs.

Source: RHB Research - 7 Mar 2024