Monday 19 November 2012

Perisai Petroleum - Teknologi A Promising Revival


We are initiating coverage on Perisai with an OUTPERFORM call and a target price of RM1.48 based on a target PER of 13x on CY13 EPS of 11.4 sen. Perisai is an oil and gas service provider with assets that cater to the exploration, development and production segments of the upstream oil and gas sector. Its current fleet consists of 1) a derrick-lay barge; 2) eight offshore support vessels (OSVs) and 3) a Mobile Offshore Production Unit (MOPU). It is also awaiting the delivery of a jack-up drilling rig by mid-2014 and negotiating for the acquisition of an equity stake in a FPSO owned by EOC Ltd. We are projecting a 3-year net profit CAGR of 75.5% from FY11 largely due to its new assets. We like the stock for its fairly diversified asset mix, which allows it to capture opportunities from different segments of the upstream oil and gas sector. Its link to Ezra will also give Perisai access to technological know-how and specialised assets.

Fairly diversified and niche asset mix. Perisai Petroleum Teknologi Bhd's (Perisai) asset fleet allows it to capture the relative opportunities from a majority of the upstream value chain, and minimises the risks that come with just a segment concentration. Moreover, we believe that once Perisai achieves a certain asset scale, there will be potential for it to control resource allocations, optimise its operating costs and cross-sell its service range, much like the strategy that is being adopted by SapuraKencana Petroleum Bhd (SKPETRO, OP; TP:RM3.42). This will be a significant plus point for it going forward as we understand that oil and gas majors are increasingly looking to award contracts on a turnkey basis.

The Ezra link. Singapore-listed Ezra is a major shareholder in Perisai with a c.16% stake. It also has several operational involvements with the company (i.e. Intan Offshore and charter of the Lewek Arunothai FPSO). Perisai's management has expressed the intention to leverage on its relationship with Ezra as and when it foresees the opportunities. We believe that further collaborations with Ezra may see the injections of specialised assets into the Perisai's local operations. We highlight that a member of Ezra's Board of Directors, Captain Adarash Kumar A/L Lai Amarnath, is also currently the Executive Director of Perisai.

Contract replenishment risk mitigated by sizeable clientele and young fleet. Perisai's clients (SKPETRO, Ezra, Petronas,etc.) are market leaders in their own right and have significant order backlogs, which bode well for contract extensions on Perisai's part. Perisai's fleet is also relatively young (average age of 6 years), which is another edge when it comes to securing contracts.

3-year net profit CAGR of 75.5% from FY11. We are forecasting FY12-14 net profits of RM93.2m, RM97.3m and RM115.0m respectively. The significant 400% earnings jump from FY11 will be mainly due to new earnings from Intan Offshore and the Rubicone MOPU while the incremental jump, in CY14 will be from the start-up of the jack-up rig operations (which we assume would be able to secure a contract once delivered). Potential catalysts for FY13-14 earnings could also come from the acquisition of a stake in Lewek Arunothai FPSO that is currently owned by EOC Ltd. Assuming a 30% equity stake, the FPSO earnings could add c.RM7.9m in FY13 and c.RM17.8m in FY14. We have not incorporated the above potential earnings into our forecasts.

The risks to its optimistic outlook include 1) a downturn in the oil and gas sector that will delay contract flows; 2) failure to replenish contracts, which will significantly affect its earnings growth as well as 3) the failure to raise funding for asset expansion purposes.

Source: Kenanga

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