Period  4Q14/FY14

Actual vs. Expectations  Perdana Petroleum (PERDANA) reported 4Q14 core net profit of RM11.9m; bringing FY14 net profit to RM84.9m. This is below our (RM90.7m) and consensus’ (RM96.4m) net profit forecasts at 93.6% and 88.0%, respectively. Core net profit excludes: (i) FOREX gain of RM18.9m, (ii) deposit accretion of RM3.6m, and (iii) RM16.8m goodwill impairment.

 The main reason behind the weaker-than-expected results is the earlier-than-scheduled dry-docking of 3 vessels (1 AHTS & 2 workboats) in 4Q14 resulting in lower vessel utilisation.

Dividends  No dividends have been declared for the quarter as expected.

Key Results Highlights  Core net profit in 4Q14 plunged 57.7% QoQ due to lower vessel utilisation resulting from higher dry docking activities and interim maintenance of vessels.

 Net profit has also declined by 32.5% YoY in 4Q14 underpinned by lower vessel utilisation due to dry docking in the quarter compared to last year.

 Full year FY14 net profit surged by 53.9% YoY due to significantly higher vessel utilisation rate (FY14: 92.0% vs. FY13: 80.0%) and partial contribution from the Petra Resolute, a 300-pax work barge delivered in early 2014.

Outlook  PERDANA has taken delivery of Petra Emerald, a 300-pax accommodation barge in 4Q14. It will be replacing Petra Enterprise which is serving a multi-year contract running up to Feb-16. The latter will therefore be put-up for sale.

 Out of its fleet of 17 vessels, only 4 vessels (Petra Frontier, Petra Ranger, Petra Horizon and Petra Liberty) are exposed to the spot charter market while the remaining are on long-term charters spanning to 2018/2019.

 PERDANA is likely to be the least exposed OSV player to renegotiation of rates by Petronas as it is already providing relatively low rates compared to its peers (DCR of USD1.9/bhp vs. USD2.2-2.3/bhp by other OSV players) given that contracts were won pre-rebound cycle (i.e. 2013).

 No further vessel additions are expected in FY15. The group will be saving resources for incoming deliveries of two higherend 500-pax workbarges scheduled to take place in 1Q16 and 2Q16 respectively.

Change to Forecasts  We cut our FY15 earnings forecast by 7.3% as we lowered our blended vessel utilization rate for AHTS and workbarge to 82.3% and 94.3% (from 94.9% and 95.7% previously), respectively.

 We have also introduced our FY16 core net profit forecast of RM97.5m based on assumptions of: (i) 82.3% and 94.3% blended vessel utilization for AHTS and workbarges respectively, and (ii) partial contribution from its two upcoming 500-pax work barge to be delivered in 1H16 (DCR assumed: RM90,000/day)

Rating Downgraded to UNDERPERFORM (from MARKET PERFORM) previously due to unexciting earnings prospects in the near term.

Valuation  As a result of earnings cut, TP is reduced to RM1.10 from RM1.19 previously based on unchanged 9.0x target PER.

 This valuation is in-line with small cap valuation range of (7x- 10x) in an industry down cycle.

Risks to Our Call  Better-than-expected utilisation rates of vessels on spot charter.

 Stronger-than-expected rebound in crude oil price.

Source: Kenanga