PERDANA PETROLEUM BERHAD - Stellar Start Date: 23/05/2014
Source : PUBLIC BANK Stock : PERDANA Price Target : 2.32 | Price Call : BUY Last Price : 1.80 | Upside/Downside : +0.52 (28.89%)
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Perdana Petroleum‟s 1QFY14 results inks the notable progress of its goals, meeting 32% and 24% of our revenue and earnings estimates respectively. Revenue recorded RM87.3m (+54% YoY, +12% QoQ), with earnings of RM22.0m +98% YoY, +1% QoQ). The stellar results are attributed to the improvement in vessel utilisation (1Q: 83%), increase in fleet size to 18 vessels (16 vessels in 2013) and higher charter rates this quarter. We are also reassured of the Group‟s execution abilities demonstrated by the secured extension charter contract from Murphy Sabah/Sarawak Oil Co. Ltd. announced on Wednesday. We would like to reiterate that Perdana is expected to maintain its Shariah-Compliant status during the upcoming Securities Commission Malaysia (SC) May review. We continue to recommend an Outperform call on Perdana with a TP of RM2.32, based on our DCF valuation using a 10.1% WACC to reflect a 20-year life expectancy of the vessels and see weakness in current price levels as an opportunity.
1Q Results are commendable, driven by the increase in charter rates largely due to Perdana‟s fleet profile which on average is c.4.5 years old, coupled with higher capabilities which are limited in the OSV market, such as >10,000 bhp vessels and >300 men work barge and ongoing demand for work boats. Proving to have execution abilities, 15 out of 18 vessels of the Group have long term charter contracts, with an order book of c.RM1.4bn up to 2019.
Perdana’s strategies. To recap, i) pre-determined contract is tied to one of Perdana‟s undelivered vessels which would translate to materialised earnings as soon as the vessel begins its charter period, ii) its balance sheet has the ability to gear-up, currently operating at 0.6x net gearing (policy up to 1.5x), iii) favourable long-term rates owing to the limited supply of higher bhp vessels, and iv) Perdana‟s next phase of growth will be to venture into their 2nd new build programmes of vessels for FY15 and to acquire more new assets in line with the Group‟s plan to have a balanced fleet of AHTS and work barges/workboats.
Catalysts. i) Malaysia‟s national oil company Petronas, will continue to boost oil production and hence offshore activities with its capex investment of RM300bn for 2011-2015 posing opportunities for the Group to bid for ongoing tenders and bidding exercises. Perdana has set aside RM300m for its own capex needs.
To maintain Shariah-compliant status, as the upcoming SC Shariah-compliance review this month considers companies based on their last annual report financials (FY12), of which it meets requirements.
Actual vs. Expectations Perdana Petroleum (PERDANA) reported 1Q14 net profit of RM22.0m which is within our expectations at 21.9% of full-year forecast (RM100.4m) and 23.2% of consensus’ (RM94.7m).
Dividends No dividends were declared as expected.
Key Results Highlights QoQ, net profit was up mere 3.3% mainly due to there being higher unrealised forex gains of c.RM3.6m in 4Q13 versus RM1.1m in 1Q; excluding that net profit was actually c.18.4% up and this is largely due to: (i) better overall vessel utilisation of 89% (versus 84% in 4Q13); (ii) continued mobilisation of new vessels for the long-term contracts from Dayang Enterprise (DAYANG, OP; TP: RM4.82) – one more vessel was mobilised in 1Q14; and (iii) better net margins as a result of costs savings from the disposal of its older units in 2013.
YoY, PERDANA unsurprisingly locked in significant improvements (+98.4%), due to overall recovery of the OSV sector in 2013 coupled with the additional boost of the LT contract from DAYANG.
Outlook Improvement in earnings prospects from 2Q14 onwards is expected as it features full-quarter contribution of vessels chartered to DAYANG, whilst in 4Q14 PERDANA awaits another vessel delivery.
Medium-to-longer-term prospects are stable on the back of PERDANA’s long-term contracts (15 OSVs).
Currently, only two vessels (two 5k BHP AHTSs) are on spot charters and PERDANA is confident of securing recurring contracts for such vessels given the OSV up-cycle.
Longer-term prospects will hinge on PERDANA’s future fleet expansion which we believe management will broach soon. Management recently guided it will allocated c.RM300m capex for brownfield assets over the next 2 years.
Change to Forecasts As results are within expectations, we maintain our FY14-15E forecasts for now.
Rating Maintain OUTPERFORM.
Valuation Our target price of RM2.47 based on an unchanged target PER of 15.5x (in line with PERDANA’s +1.5 historical standard deviation forward level seen on top of its average mean in 2006-2008) on CY15 EPS of 15.3 sen.
Risks to our call (i) Lower-than-expected daily charter rates and utilisation rates and (ii) sudden downturn in crude oil prices that could adversely impact the offshore oil and gas services industry.
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To buy 2 units of 500 pax accommodation barges for USD84m with the option for another 2.
This would offer visible earnings beyond 2016.
Maintain BUY and MYR2.55 TP, based on 2015 PER.
What’s New
Perdana has placed orders for 2 units of 500 pax accommodation workbarges with shipbuilder, Nam Cheong. These newbuilds, scheduled to be delivered by 1Q16 and 2Q16 respectively, will cost Perdana USD84m. The payment structure would be a 20% deposit and the remaining 80% upon delivery.
Perdana also has the option to order another 2 units (of similar specifications).
What’s Our View
This is a positive development but not entirely a surprise. We have highlighted such possibility in our previous reports, considering Perdana’s improving financials and to capitalise on the upcycle in the offshore support vessel (OSV) markets.
Perdana’s has the balance sheet and cashflows to support its fleet rejuvenation program. An additional MYR54m (for a 20% deposit) will only raise its net gearing from 1.0x as at Mar'14, to 1.1x. Almost its entire fleet are on long term charters with reasonable rates and high utilisation levels.
We view Perdana’s move into the 500 pax accommodation barge segment as a strategic move, targeting the overseas market. Demand for such vessels is high as they support brownfield activities.
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PERDANA PETROLEUM BERHAD - Stellar Start
Date: 23/05/2014
Source : PUBLIC BANK
Stock : PERDANA Price Target : 2.32 | Price Call : BUY
Last Price : 1.80 | Upside/Downside : +0.52 (28.89%)
Back
Perdana Petroleum‟s 1QFY14 results inks the notable progress of its goals, meeting 32% and 24% of our revenue and earnings estimates respectively. Revenue recorded RM87.3m (+54% YoY, +12% QoQ), with earnings of RM22.0m +98% YoY, +1% QoQ). The stellar results are attributed to the improvement in vessel utilisation (1Q: 83%), increase in fleet size to 18 vessels (16 vessels in 2013) and higher charter rates this quarter. We are also reassured of the Group‟s execution abilities demonstrated by the secured extension charter contract from Murphy Sabah/Sarawak Oil Co. Ltd. announced on Wednesday. We would like to reiterate that Perdana is expected to maintain its Shariah-Compliant status during the upcoming Securities Commission Malaysia (SC) May review. We continue to recommend an Outperform call on Perdana with a TP of RM2.32, based on our DCF valuation using a 10.1% WACC to reflect a 20-year life expectancy of the vessels and see weakness in current price levels as an opportunity.
1Q Results are commendable, driven by the increase in charter rates largely due to Perdana‟s fleet profile which on average is c.4.5 years old, coupled with higher capabilities which are limited in the OSV market, such as >10,000 bhp vessels and >300 men work barge and ongoing demand for work boats. Proving to have execution abilities, 15 out of 18 vessels of the Group have long term charter contracts, with an order book of c.RM1.4bn up to 2019.
Perdana’s strategies. To recap, i) pre-determined contract is tied to one of Perdana‟s undelivered vessels which would translate to materialised earnings as soon as the vessel begins its charter period, ii) its balance sheet has the ability to gear-up, currently operating at 0.6x net gearing (policy up to 1.5x), iii) favourable long-term rates owing to the limited supply of higher bhp vessels, and iv) Perdana‟s next phase of growth will be to venture into their 2nd new build programmes of vessels for FY15 and to acquire more new assets in line with the Group‟s plan to have a balanced fleet of AHTS and work barges/workboats.
Catalysts. i) Malaysia‟s national oil company Petronas, will continue to boost oil production and hence offshore activities with its capex investment of RM300bn for 2011-2015 posing opportunities for the Group to bid for ongoing tenders and bidding exercises. Perdana has set aside RM300m for its own capex needs.
To maintain Shariah-compliant status, as the upcoming SC Shariah-compliance review this month considers companies based on their last annual report financials (FY12), of which it meets requirements.
Source: PublicInvest Research - 23 May 2014