We are initiating
coverage on Perdana Petroleum (“PERDANA”) with an OUTPERFORM call given that
our target price of RM1.62 (based on a target PER of 14x on CY13 EPS of 11.6
sen) implies a 38% upside to its current share price. Perdana is an
offshore marine services (OSV) provider
for the upstream oil and gas industry. Well known by the investment community,
it was put in the back-burner from 2009 to early 2012 due to: 1) a long-drawn
out management tussle; 2) poor reported earnings; and 3) a weak
OSV industry-wide outlook. However, Perdana’s turnaround in its 2012 net profit
and the slew of offshore marine contracts awarded since the beginning of the
year has led us to believe that the industry is back on track and is poised for
a re-rating. We expect a 2-year CAGR of 70.1% heading into 2013-14 and we like
the stock for its: 1) optimal marine vessel product mix; 2) young fleet; and 3)
linkages with Dayang Enterprise (“DAYANG”).
Recovery of the OSV
market. As of Jan-2013, c.RM1.4b
worth of offshore marine vessel contracts has already been awarded to the local
OSV players for the year. We note that this has far surpassed the contract
values seen in the 2007-2008 cycle when the sector was last considered to be
the most vibrant. We see the swift turnaround as a signal that the OSV market
is finally coming around and that the sector is poised for a re-rating by the
investment community.
Optimal offshore
vessel mix. Perdana’s current asset
fleet can be largely categorised under the Anchor Handling Tug Supply (AHTS)
and Accommodation marine vessels, which serve both the green and brownfield segments of the oil and
gas (O&G) value chain. Perdana’s strategy ensures that its fleet is
balanced to cater to the various phases of the O&G value chain and in our
view; this will be the main driver of its current earnings turnaround. Longer-term
contracts and sustainable earnings ahead. Half of Perdana’s AHTS capacity has
been chartered on long-term contracts (on 4 Jan, Perdana won a 5+1 year
contract for four of its 10k Brake-horse-Power (BHP) vessels). We suspect that
a majority of its accommodation vessel fleet could be similarly chartered on
long-term contracts as well, assuming its Dayang Enterprise (“DAYANG”) will be
able to secure a sizeable portion of the RM7-10bn Pan Malaysia Hook-up and
Commissioning contract (estimated to be awarded by 1QFY13).
The Dayang Enterprise
factor. Its link to Miri-based Dayang allows Perdana some access to the
turnkey contracting market that OSV players typically do not have. In our view,
this enhances Perdana’s chartering success as it is riding on the prospects of
a reputable turnkey contractor. We also see Perdana as a cheaper proxy to the
brownfield O&G segment given its attractive CY13-14 PER valuations of just
10.1x-8.2x vis-à-vis the CY13-14 12.2x-11.3x that Dayang is currently trading
at.
2-year net profit CAGR
of 70.1% from FY12. We are
forecasting a significant net profit jump of 135.5% for FY13, and thereafter,
another 22.9% jump in earnings for FY14 on the back of heightened utilisations
for both its AHTS (89.1%-93.5%) and Accommodation Workbarge and boat
(82.9-91.4%) fleet.
The risks to its
optimistic outlook include: 1) a downturn in the oil and gas sector that
will delay contract flows; 2) lower-than-expected capacity utilisation and a
charter rate downturn; 3) inability to sell off old vessels, which will
continue to tax Perdana’s financials and 4) inability of its partner – Dayang
to secure a sizeable portion of the Pan Malaysia contract.
Source: Kenanga
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