Jun 25, 2014

Perdana Petroleum

Perdana  Stock Code  7108 - Share Price: MYR1.80  Target Price: MYR2.55 (+42%)

On a fleet expansion drive
- To buy 2 units of 500 pax accommodation barges for USD84m with the option for another 2.
- This would offer visible earnings beyond 2016.
- Maintain BUY and MYR2.55 TP, based on 2015 PER.

What’s New
Perdana has placed orders for 2 units of 500 pax accommodation workbarges with shipbuilder, Nam Cheong. These newbuilds,scheduled to be delivered by 1Q16 and 2Q16 respectively, will cost Perdana USD84m. The payment structure would be a 20% deposit and the remaining 80% upon delivery.

Perdana also has the option to order another 2 units (of similar specifications).

What’s Our View
This is a positive development but not entirely a surprise. We have highlighted such possibility in our previous reports, considering Perdana’s improving financials and to capitalise on the upcycle in the offshore support vessel (OSV) markets.

Perdana’s has the balance sheet and cashflows to support its fleet rejuvenation program. An additional MYR54m (for a 20% deposit) will only raise its net gearing from 1.0x as at Mar'14, to 1.1x. Almost its entire fleet are on long term charters with reasonable rates and high utilisation levels.

We view Perdana’s move into the 500 pax accommodation barge segment as a strategic move, targeting the overseas market.Demand for such vessels is high as they support brownfield activities.

Our earnings forecasts are unchanged for now.

petra_perdana_financial_daya by Maybank IB

The Company is principally involved in the supply of engineered equipment for the oil and gas, petrochemical and other heavyindustries and provides day-to-day administrative and management services to its subsidiaries. The subsidiaries are principally engaged in integrated engineering and maintenance services, equipment packaging, fabrication of processed equipment, supply of engineered equipment and information technology services to cater for the oil and gas, petrochemical and other heavy industries.