Perdana Petroleum - Old Vessel Sales

News  Perdana Petroleum (“PERDANA”) announced yesterday that it had entered into an agreement to dispose seven of its old vessels enbloc (with an average age of approximately 30 years) to PT Ninda Pratama Vriesindo for a total consideration of USD3.45m (c.RM10.7m).

 20% of the Sale Consideration is payable within three days from the date of signing of the Disposal Agreement and the balance 80% is payable seven days prior to the commencement of the collection of the vessels. The expected time of delivery of the vessels will be on 15 March 2013.

Comments  We are not surprised by the news as we expected as much, when Perdana made an impairment loss on its non-current asset classified as held for sale of RM27.7m in its 4QFY12 results.

 Recall that we had highlighted that a key risk for Perdana was its inability to sell its older vessels as it would mean that there were unnecessary costs incurred for the non-operating vessels. This sale thus was necessary for Perdana to rationalise its cost structure and we believe that the company now has a clean slate going forward.

Outlook  A balanced offshore vessel mix will ensure that it has sufficient reach to the different segments of the O&G value chain.

 Its relatively young asset fleet will mitigate the risk of its contract replenishments post the completion of its long-term contracts.

 Meanwhile, its linkage to Dayang will provide Perdana with some access to turnkey projects.

Forecast  We believe that our forecasted margin expansion in FY13-14 already covers some of the cost savings that will be realised from the vessel sales.

 As such, we are maintaining our FY13-14 net profit estimates.

Rating    Maintain OUTPERFORM

Valuation  Our target price of RM1.62 is based on a targeted PER of 14.0x (in line with its 2-year historical average forward PER of 14.0x seen in 2007-2008) on its CY13 EPS of 11.4 sen.

Risks  1) A downturn in the oil and gas sector could hamper future vessel utilisations, 2) a lower than expected capacity utilisation charter rates and 3) the inability of Dayang to secure a sizeable portion of the Pan Malaysia contract.

Source: Kenanga