Perisai Petroleum Tech - More To Come?

Date: 
2012-10-18
Firm: 
KENANGA
Stock: 
PERISAI
Price Target: 
1.18
Price Call: 
TRADING BUY
Last Price: 
0.005
Upside/Downside: 
+1.175 (23500.00%)

INVESTMENT MERIT
' Stable earnings with bareboat charters.  All of Perisai's contracts are on bareboat charter, which implies that its earnings risk is mitigated. 

' The Ezra link.  Singapore-listed Ezra is a major shareholder in Perisai with c.16% stake. It is the holding company of Emas Offshore, the 49% JV partner in Intan Offshore. We do not rule out further collaborations given its previous involvements. Perisai may be participating in an FPSO project for the Kamelia field with Emas Offshore's FPSO arm given the local content requirement for the project in Malaysian waters. 

' More assets = further earnings growth.  FY13 earnings will be boosted if Perisai manages to secure the Kamelia FPSO project with EOC Ltd; its FY14 net profit will see another jump when Perisai accepts delivery of its first jackup rig (expected by mid-14). It has an option (expires by Feb-13) to buy another jack-up rig for USD210m, assuming a similar construction tenure to the first jack-up rig, which will help to push up its FY15 earnings.

' Conservative consensus forecast.  The consensus has forecast a FY13 net profit of RM91.7m, implying an  EPS of 11 sen. We believe the forecast is conservative given that is even lower than the annualised Perisai's 1HFY12 earnings of RM93.4m. The potential earnings catalyst are 1) the transfer of Intan Offshore's assets (OSVs) to a Labuan tax structure, and 2) an FPSO win by year-end.

' Decent upside.Ascribing a PER target of 11x (1x premium to Alam Maritim (10x CY13) due to its better earnings visibility), this will  imply a base case fair value of RM1.18, which still implies an upside of around 11.7%.

SWOT ANALYSIS
' Strength:  1) Bareboat charters imply lower earnings risk; and 2) niche asset base mitigates order replenishment risks. 

' Weaknesses:  High net gearing ratio (1x) implies further fund-raising activities upon new acquisitions. 

' Opportunities:  Expansion into the FPSO and jack-up rig market may lead to earnings improvement.

' Threats: Lower-than-expected yields from future jack-up rig ventures. 

TECHNICALS
' Resistance:RM1.10 (R1), RM1.13 (R2)
' Support: RM1.04 (S1), RM0.95 (S2)
' Comments: The recent surge in the share price has placed the  Stochastics and RSI in overbought territory, and hence we expect some degrees of consolidation in the near term. That said, traders should look to buy on weakness given the overall bullish technical picture.

BUSINESS OVERVIEW
Perisai Petroleum Tecknologi ('Perisai') is a Malaysian Oil & Gas offshore service provider, which was listed in 2004. In 2010, it underwent a business restructuring that resulted in some divestments of  its assets and core businesses. The company then refocused on vessel chartering business. At this juncture, Singapore-based oil and gas services player, Ezra is a majority shareholder while the management is headed by the likes of En. Zainol Izzet, Sapuracrest Bhd's previous CEO.

BUSINESS SEGMENTS
' Offshore Support Vessels (OSVs).  Vessels are jointly'owned (51%) with Emas Offshore, a subsidiary of Ezra under Intan Offshore. The fleet consists of 2 AHTs, 3 AHTS and 3 crewboats and has an average age of 6 years. All vessels are on bare boat charter to Ezra.

' Offshore Construction. The main underlying asset is Enterprise 3 (E3), a Derrick Pipelay Barge. Currently, E3 is chartered on a bareboat basis to TL Offshore Sdn Bhd, a subsidiary of SapuraKencana Petroleum. 

' Production.  The main underlying asset is the Rubicone, a Malaysian flagged ABS Class Mobile Offshore Production Unit (MOPU). Rubicone is currently on bare-boat contract to Petronas for operations off the coast of Terengganu.

' Offshore Drilling.  Perisai signed a Rig Construction Contract with PPLShipyard to construct a jack-up drilling rig at a cost of USD208m. The expected delivery is in 1H2014. Perisai also has the option to construct an additional jack-up rig unit for USD210m. This option is yet to be exercised.

Source: Kenanga 
Discussions
3 people like this. Showing 4 of 4 comments

excelyou

Rating Fair Value
Current RM1.06
Kenanga Trading Buy RM1.18
Consensus Buy RM1.44

2012-10-19 13:37

excelyou

An oil and gas support services provider, is poised to move one notch up the ladder in the supply chain of the industry by going into the lucrative FPSO market. Perisai is looking at acquiring stake in a FPSO vessel from its shareholder Ezra Holdings Ltd and the vessel is to be used for providing services to an offshore O&G field in Malaysia .
A consortium led by Ezra has put in a bid to supply the FPSO vessel to cater to the North Malay Basin oil field located off the coast of Terengganu and Kelantan. While reports said Ezra’s wholly owned subsidiary bagged the job, industry executives said nothing has bee firmed up yet and there is challenge from a consortium led by MISC Bhd
Perisai is eyeing a stake in the FPSO vessel from Ezra’s 46.5% unit EOC Ltd, which is listed in Oslo , to fulfill the localization needs, should they arise. It is still being mulled over. It depends on how things develop. If localization is required, Perisai may buy the FPSO.
In the oil and gas’s support services industry, the FPSO segment is considered a better area because of the long term charter. A typical charter is for a minimum of three years and will normally continue as long as the field is producing.
The biggest FPSO licensed holder for Petronas is MISC. The other notable FPSO provider is Bumi Armada but its vessels are mainly chartered for overseas offshore fields.

Perisai should not face any difficulties in funding to purchase the FPSO, as the acquisition will be backed by a long term charter contract. The cost of the FPSO could range from US$300 million to US$500 million.

Ezra’s stake in Perisai is held under two of its units – HCM logostics Ltd and Emas Offshore Sdn Bhd. Following the development in the North Malays Basin , it has been speculated that Emas Offshore has been awarded the contract to provide the FPSO by Petronas Carigali and Hess group JV.

In July 2012, Perisai MD Zainol Izzet emerged as a 7.75% stake by exercising an option with HCM Logistics. After the exercise, Ezra’s interest in Perisai is down to 16.1%.

The shareholder structure now (Oct 2012) allows Perisai to acquire O&G assets. This is because Ezra could raise its stake in Perisai without having to trigger a general takeover.

As at end June 2012, Perisai had cash and bank balances of rm15.91 million and rm287 million in long term borrowings and rm178 million in current liabilities.

It was earlier reported that Bumi Armada had teamed up with Emas Offshore in bidding for the North Malay Basin job and MISC, a 62.7% unit of oil major Petronas, had teamed up with LTH controlled Ramunia Holdings Bhd.

2012-10-19 13:41

excelyou

Coming months, the first acquisition could be a stake in Emas Offshore’s (EOC) FPSO.
In order to exchange for stakes in the FPSO, Perisai could either issue more shares, or raise capital through rights issue.Recall that EOC which is also Ezra's 46.5% associate, was reported to have received a Letter Of Intent to supply and operate a floating, production, storage and offloading vessel to HESS, for the Kamelia gas field.
EOC still needs to meet strict domestic content requirements for off-shore projects, and it could be salvaged through Perisai’s 40%-owned Larizz Petroleum which is licensed to bid for local contracts.

Calculation shows that by securing a 50% stake in a US$300m FPSO is expected to raise the company’s fair value by RM300m or RM0.53 per share, assuming a project internal rate of return of 15%, while enhancing earnings by RM38m per year.

Meanwhile, the market is speculating a second asset acquisition (besides the FPSO for HESS), but the value is unknown at this juncture. This is another project that provide a catalyst to Perisai shares.

2012-10-19 13:49

Hong2

Thanks for sharing, Excelyou

2012-10-19 13:51

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