CIMB Research advises investors to accumulate Perisai shares (Star)

CIMB Equities Research advises investors to accumulate Perisai Petroleum shares as it retains the target price at 63 sen, which is an upside of 46.8% over the last traded price of 43 sen.
“We conservatively removed two idle assets, namely mobile offshore production unit Rubicone and pipelay barge E3, from our forecasts. Should management secure contracts for these assets, the swing in earnings would be substantial,” it said on Friday.

CIMB Research said Perisai’s management has stated it is set to remain on the Securities Commission’s shariah compliance list in the May 2015 review after a successful conversion of US$170mil of conventional loans into an Islamic facility in the final week of FY14.

“We continue to value the stock at 10.5 times CY16 P/E, still at a 30% discount to the oil & gas big caps,”  it said.

In the week of Dec 29, 2014, its management finalised the conversion of US$170mil of conventional loans for jack-up PP101 into an Islamic facility with no change in terms and rates and at a minimum paperwork charge.

With this development, Perisai is set to remain on the SC’s Shariah compliance list in the May 2015 review.   

“We are encouraged that management took the initiative to meet the SC’s requirement for shariah compliance. As at Sept 30, 2014, Perisai’s total borrowings amounted to RM1.1bil, of which most were conventional, while total assets were worth RM2.4bil,” it said.

CIMB Research said the company’s total conventional borrowings over total assets, therefore, stood at 47%, higher than the 33% threshold set by the SC.

After the conversion, Perisai’s total conventional borrowings over total assets should be reduced to an estimated 21% by  Dec 31, 2014, allowing the company to keep its Shariah-compliant status come May.  

Another industry player, SapuraKencana, is in the midst of converting an estimated RM8bil out of RM15.3bil in borrowings (as at July 31, 2014), of which all are conventional, into Islamic instruments...

As for Perisai, CIMB Research is maintaining its  Add call, with the deployment of Rubicone and E3 as potential re-rating catalysts.

E.A. Technique IPO

Opening of application24/11/2014
Closing of application01/12/2014
Balloting of applications03/12/2014
Allotment of IPO shares to successful applicants09/12/2014
Tentative listing date11/12/2014

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INITIAL PUBLIC OFFERING (“IPO”) OF 129,000,000 ORDINARY SHARES OF RM0.25 EACH IN E.A. TECHNIQUE (“SHARE(S)”) IN CONJUNCTION WITH THE LISTING OF AND QUOTATION FOR THE ENTIRE ENLARGED ISSUED AND PAID-UP ORDINARY SHARE CAPITAL OF E.A. TECHNIQUE ON THE MAIN MARKET OF BURSA MALAYSIA SECURITIES BERHAD COMPRISING:-

(A) A PUBLIC ISSUE OF 114,000,000 NEW SHARES (“ISSUE SHARE(S)”) IN THE
FOLLOWING MANNER:-

(I) 25,200,000 ISSUE SHARES MADE AVAILABLE FOR APPLICATION BY THE MALAYSIAN PUBLIC AT AN ISSUE PRICE OF RM0.65 PER ISSUE SHARE (“IPO PRICE”), PAYABLE IN FULL UPON APPLICATION;

(II) 78,800,000 ISSUE SHARES MADE AVAILABLE FOR APPLICATION BY WAY OF PRIVATE PLACEMENT TO INSTITUTIONAL AND SELECTED INVESTORS AT THE IPO PRICE, PAYABLE IN FULL UPON APPLICATION; AND

(III) 10,000,000 ISSUE SHARES MADE AVAILABLE FOR APPLICATION BY OUR ELIGIBLE DIRECTORS AND EMPLOYEES OF E.A. TECHNIQUE AND ITS SUBSIDIARY AT THE IPO PRICE, PAYABLE IN FULL UPON APPLICATION;

(B) AN OFFER FOR SALE OF 15,000,000 EXISTING SHARES, MADE AVAILABLE FOR APPLICATION BY WAY OF PRIVATE PLACEMENT TO IDENTIFIED INVESTORS AT THE IPO PRICE, PAYABLE IN FULL UPON APPLICATION.

===========

KUALA LUMPUR: E.A. Technique (M) Bhd, which is en route to a listing on the Main Market of Bursa Malaysia, expects to raise RM74.1 million through the public issue of its initial public offering (IPO).

E.A. Technique's IPO entails an offer for sale of 15 million existing shares and a public issue of 114 million new shares, of which 25.2 million new shares will be made available to the Malaysian public at an issue price of 65 sen per share.

Upon listing, the group will have a market capitalisation of RM327.6 million.

Of the RM74.1 million proceeds raised, RM30 million will be used for the repayment of bank borrowings, RM29.2 million for capital expenditures and RM9.9 million for working capital.

The company is expected to be listed on the local bourse on December 11.

Despite concerns over falling global oil prices, managing director Datuk Ir. Abdul Hak Amin believes the company would be "well insulated" as it does not solely depend on the oil and gas business, but is rather a diversified entity that is also involved in the shipyard and port operations.

Speaking at a press conference in conjunction with the company's prospectus launch here yesterday, he added that the group will be able to weather any downturn with the support of its long-term contract.

E. A.Technique is a ship-owner and operator of marine vessels for the transportation and offshore storage of oil and gas, and provider of port marine services. Its wholly-owned subsidiary Johor Shipyard and Engineering Sdn Bhd is involved in shipbuilding, ship repair and minor fabrication.

It operates a total of 31 marine vessels, of which 22 vessels are owned by the company while the remaining 9 vessels are chartered in from external parties.
Abdul Hak said the group plans to acquire six more new vessels namely, two fast crew boats, three harbour tugboats and a floating storage and offloading (FSO) vessel.

On its shipbuilding facilities expansion plan in Hutan Melintang, Perak, he said it's still under construction and is targeted for completion by the end of 2015. The group has earmarked RM10 million from the IPO proceeds to part finance the construction of the dry dock.

As at October 31, the group's order book stood at RM830.7 million, with jobs to keep it busy till 2025.

According to the prospectus, Kulim (Malaysia) Bhd's indirect interest in E.A. Techniques through Sindora Bhd, will be pared down from 65.4% to 50.6% upon listing.

For the financial year ended December 31, 2013, E.A. Techniques posted a net profit of RM19.45 million, an increase of 2.86% compared with RM18.91 million in the previous corresponding period.

However, for the five-month period ended May 31, 2014, its net profit was some 88.23% lower to RM5.26 million, in the absence of a gain on disposal amounting to RM37.5 recorded in the same period, the year before.

Source : The Sun Daily

Oil Prices

Falling factory output in China and the onset of recession in Europe means that a continued fall in the demand for crude oil is inevitable. The recent return to production of Algeria, Libya, Iraq and Iran means that the world is already oversupplied with crude oil. The astonishing rise of production by hydraulic fracturing in the USA means that America is increasingly self-sufficient in oil. When supply exceeds demand a fall in the price of any product is inevitable.


Read more....

Icon Offshore Berhad IPO

EKUITI Nasional Bhd's first spinoff,  Icon Offshore Bhd, en route to a listing on  Bursa Malaysia's Main Market on June 25, aims to raise about RM1 billion through its initial public offering (IPO). Ekuinas, which was mandated in 2009 to invest in Bumiputera companies to build up their capacity,  had invested in two Bumiputera OSV companies,  namely Tanjung Kapal Services Sdn Bhd and Omni Petromaritime Sdn Bhd, before merging them  to create Icon Offshore in 2012.

As at April 30, the company boasts of 32 vessels available for charter and operating in waters off Malaysia, Thailand and Qatar. The company plans to add seven more vessels to its fleet by year-end. According to the prospectus, Icon Offshore owns one of the youngest fleet in the region with an average age of five years, versus the Southeast Asia average of 11 years. In Icon Offshore’s case, 90% of its fleet is serving out three to five year retainer contracts, providing a buffer to swings in the market.

The bulk of its fleet is locked into time charters, which typically last 12 months or longer. Its average utilisation has dipped from 88% in 2011 to 84% last year.

Some 70% of its jobs come from Petronas, which the firm is hoping to reduce by expanding into the region.

At an indicative initial public offering (IPO) price of RM1.85 a share, the oil and gas support services provider will be listed at a price-to-earnings multiple (PE) of 18 to 19 times its estimated 2014 earnings – a premium over the sector average of 13 times.

Its peers such as Perdana Petroleum Bhd and Alam Maritim Resources Bhd are currently trading at 13 times their forecast earnings this year, and between 11 and 12 times their expected profit in 2015, Bloomberg data showed.

On a historical basis, the listing price is a steep 24 times the company's earnings per share of 7.61 sen last year. Its 2015 valuations are more reasonable at 13 to 15 times earnings.

At these levels, the offshore support vessel (OSV) owner-operator is commanding valuations that are closer to the large cap, integrated players like Bumi Armada Bhd and SapuraKencana Petroleum Bhd.

 Its debt load, which is a staggering RM1.1bil, will shrink to RM743.65mil once some of it is paid off with the listing proceeds. 

The company's net gearing ratio of 2.78 times will also drop to 0.65 times post-IPO. Notably, its current borrowings are more than double its firm orderbook of RM502.4mil.

Icon Offshore’s total orderbook, inclusive of optional extensions, is valued at RM700.1mil. 

The firm posted net profit and sales of RM89.57mil and RM334.86mil last year. Its profit after tax margin had improved to 26.7% as at last year from 19.6% in 2011.

Icon Offshore is expected to match its historical growth rates of double-digit growth, says Jamal.

Its net profit and revenue jumped by a compound annual growth rate of 41.9% and 21.6%, respectively, in the three-year period up to 2013.

Perisai

Overview

Perisai Petroleum Teknologi Berhad is an upstream oil and gas service provider. The Company's assets provide support in the offshore production facilities, offshore drilling, offshore support vessels and offshore construction and installation segments.

Review

Perisai Petroleum Teknologi  (PPT)’s FY13 net profit of MYR71.8m  made up  only  93%/91%  of  our/consensus  estimates.  The  poor  performance was  attributed  to  the  non-extension  of  contracts  for  Rubicone  and Enterprise  3  (E3).  We  upgrade  the  stock  to  BUY,  with  a  new  FV  of MYR2.28 (from MYR1.62), based on a target FY14 P/E  of 20x (from 18x), which is still a discount to UMW Oil & Gas’ 30x.

• FY13  results  below  expectation.  PPT’s  full-year  FY13  net  profit  of MYR71.8m  made  up  only  93%  and  91%  of  our  and  consensus’ estimates. The poor performance was attributed to the non-extension of contracts  for  its  mobile  offshore  production  unit  (MOPU),  Rubicone  in 2QFY13  and  its  derrick  lay  barge,  Enterprise  3  (E3)  in  3QFY13.  As  a result,  FY13  revenue  and  net  profit  declined  13%  and  22%  y-o-y respectively.
• 4QFY13 took the brunt. We had  expected 4QFY13 to be a bad quarter mainly because  Rubicone  and  E3  effectively stopped contributing  after 3QFY13 and 4QFY13 respectively. These vessels previously accounted for around 40% of its earnings. However, we do not expect these vessels to  remain  idle  throughout  FY14  and  conservatively  assume  a  50% utilisation rate for each vessel in FY14.     
• Time  to  move  on  after  a  bad  FY13.  We  believe  PPT’s  FY13 performance  is  just  a  temporary  blip  to  its  otherwise  decent  financial performance.  The  group’s  estimated  FY14/15  earnings  growth  of 31%/79%  will be driven by its new  business  unit  –  the drilling segment. We reaffirm our stance that PPT will be able to secure charter contracts in both domestic and international water s,  considering demand for new rigs to replace older ones is still strong.    
• Upgrade  to  BUY  from  Neutral;  new  MYR2.28  FV.  We  upgrade  the stock to BUY (from Neutral) with a higher MYR2.28  FV  (from MYR1.62),based  on  a  higher  target  FY14  P/E  of  20x  (from18x),  but  still  at  a discount to UMW Oil & Gas  (UMWOG MK,  NR)’s  current FY14 P/E of 30x. The group’s estimated  FY14/15 earnings  are expected to  grow  by 31%/79% respectively,  driven by its new income stream from  the drilling segment.  We keep our FY14/15 forecasts unchanged,  as our numbers have already  reflected contributions  from PPT’s first two rigs, slated to be delivered by 2QFY14 and 3QFY15.   

Oil & Gas - Still A “Slick” Bet!

Despite a booming 2013, we maintain our OVERWEIGHT call as we believe the sector will continue to be on overdrive in 2014. In our view, it is just a matter of time before more contracts and projects, which were delayed, are finally awarded to the players. In 1Q14, we expect award flows for OSV and jack-up rig players. All eyes will also be on the final investment decision (FID) results for the RAPID project which will spur a re-emergence in interest for the downstream oil and gas players. Marginal field and chemical enhanced recovery projects will also continue to be a mainstay (given Petronas’ aim to increase domestic production), but timeline uncertainties will continue to be a risk. We believe that larger cap stocks will continue to dominate during selections such as: (i) Sapurakencana Petroleum (which coincidentally is our Top Pick for its sole position as Malaysia’s integrated service provider), (ii) UMW O&G, (iii) Bumi Armada, and (iv) Dialog Group. However, investors may also look at smaller-cap ideas for re-rating prospects. In this space, we like Coastal Contract, Alam Maritim and Perdana Petroleum.

2013 - The large oil strike. The overall sector did spectacularly well in 2013 with stocks under our coverage gaining an average of 75% on YTD basis. The significant share price gains are no surprise as around RM30b of domestic contracts (inclusive of international wins, the total rise to RM43.3b) were dished out in 2013, which is a far cry from the c.RM10b contract wins in 2012. Despite significant share price appreciations, we expect further gains as we believe there are still ample project awards in 2014 to act as catalysts.

No slowdown in contracts flow comes 2014. Based on our channel checks, the market is still short of offshore supply vessels (OSVs, i.e., anchor-handling-tug-supply (AHTS), platform supply (PSVs), and (iii) accommodation (barge and boat) vessels and jack-up rigs. Meanwhile, barely any fabrication contracts were awarded in 2013 while risk-service-contracts (RSC)/ Enhanced Oil Recovery projects are seriously lagging behind. All this suggests an abundance of contracts that are yet to be awarded. (Please refer to table titled “Outlook for key upstream oil and gas sub-sectors and potential domestic beneficiaries).

Focus on drilling and OSV stocks in 1Q14, especially the “small-cap” ones. For 1Q14, we believe that the OSV and drilling sector will dominate headlines as: (i) the OSV contracts that were tendered for since end-3Q13 have yet to be awarded and (ii) there are several jack-up rigs entering the market in early-to-mid 2014 that will be looking for contracts before the delivery dates. Whilst the large-cap names like UMW O&G (NOT RATED) in the drilling segment and Bumi Armada (NOT RATED) for the OSV space will remain favourites; we believe that the relative trading PER discounts will spearhead a re-rating for smaller-cap names like peers such as Coastal Contract (COASTAL); Alam Maritim (ALAM) and Perdana Petroleum (PERDANA). For the OSV segment, further catalysts could come from the Icon-Offshore’s IPO (should it emerge this year) assuming it is listed above the CY14 PERs of stocks like ALAM and PERDANA (which stand at 11.3x and 11.9x respectively). In anticipation of heightened interest for the small stocks mentioned above, we are raising our target PERs and consequently their target prices for these stocks. Post our changes, ALAM, PERDANA and COASTAL remain OUTPERFORM at target prices of RM2.07, RM1.82 and RM4.51, respectively.

Laggard plays may surprise. Whilst real awards might come later, we believe that laggard stocks like WASEONG and MHB could see some trading interest should (i) improved market for the respective sectors (fabrication and pipe-coating) and (ii) 4Q13 results come out above our and market expectations.

A revival in the downstream segment? The Final Investment Decision for the Refinery and Petrochemical Integrated Development (RAPID) project is expected by 1Q14. Given its significance to the Malaysian economy, we believe that all efforts will be taken to ensure that the project is good-to-go. Assuming a positive decision, we believe the downstream related stocks (i.e. onshore fabricators, tank terminal operators and process equipment players) will enjoy renewed investors’ interest. Most notably is DIALOG which has a first mover status in the Pengerang area. In our view, DIALOG’s recent strong share price appreciation is due to the stock’s inclusion in the MSCI Index and greater optimism on the RAPID project. In anticipation of a more positive outlook for Pengerang Phase 2A, we have upgraded our TP to RM3.90 on the inclusion of 720k cubic meter (cbm) LNG capacity.

Reiterate OVERWEIGHT call. Our TOP PICK is SKPETRO (OP; TP: RM5.81) as it is the only integrated Malaysian O&G stock. We also maintain our Outperform calls for: ALAM (OP; TP: RM2.07), BARAKAH (OP; TP: RM1.98), COASTAL (OP; TP: RM4.51), DAYANG (OP; TP: RM6.15), DIALOG (OP; TP: RM3.90), PANTECH (OP; TP: RM1.28), PERDANA (OP; TP: RM1.82), SEB (OP; TP: RM0.78), UZMA (OP; TP: RM5.28), and YINSON (OP; TP: RM7.32). We are Neutral and Underperform for PCHEM (MP; TP: RM6.97), PERISAI (MP; TP: RM1.63), GASMSIA (UP; TP: RM3.41), MHB (UP; TP: RM3.39), PETGAS (UP; TP: RM20.77), and WASEONG (UP; TP: RM1.57).

Source: Kenanga

UMW Oil & Gas - Jack Up!

Target RM4.63 (Stock Rating: ADD)

UMW-OG's management confirmed at a recent meeting that Naga 5, which is currently under construction, is due to be rolled out in May 2014 as scheduled. The demand for jack-ups is so strong that not only is Naga 5 already contracted for, management expects to secure a second contract for the rig by end-1Q14. We have also factored in the delivery of Naga 6 and Naga 7 in 2014. We continue to value the stock at 22.5x CY15 P/E, at a 40% premium over our implied market target of 16.1x, but still within the historical P/E range of the oil & gas big caps. We maintain our contrarian Add call amid the bearish consensus view of UMW-OG, with the aggressive fleet expansion as the potential re-rating catalyst. Watch out for positive newsflow.

What Happened 
We recently met with the management of UMW-OG, who confirmed that the construction of the jack-up drilling rig Naga 5 is on track for completion in May. Naga 5, which is being built at Keppel's (KEP SP, Add) yard in Singapore for a cost of US$223m (RM738m), already has a contract waiting for it. In Dec 2013, UMW-OG bagged a US$7m (RM23m) drilling contract for Naga 5 from Australia's Nido Petroleum. The contract will commence in Jun for a duration of about six weeks at the Baragatan prospect in the Philippines. Management is currently in negotiations to secure a second contract for Naga 5, with the outcome due in Mar.

What We Think 
We are encouraged that UMW-OG's fleet expansion programme is progressing as planned. In addition to Naga 5, we have imputed the delivery of two other jack-ups, namely Naga 6 and Naga 7, in our FY14 forecasts. UMW-OG currently owns four rigs, comprising a semi-sub (Naga 1) and three jack-ups (Naga 2, Naga 3 and Naga 4). The company's decision to add more jack-ups is driven by the shortage of locally-owned jack-ups working in Malaysian waters and the priority that Petronas gives to Malaysian-flagged assets. UMW-OG is presently the only jack-up owner in Malaysia but Perisai (PPT MK, Add) plans to bring its first jack-up to the market in Jun 2014, followed by a second unit in FY15 and a third one in FY16. See overleaf for order book opportunities in Malaysia and Southeast Asia.

What You Should Do 
We advise investors to accumulate the stock as UMW-OG expands its fleet to take advantage of the high requirement for jack-ups in Malaysia and Southeast Asia.

Source: Full PDF Report
              CIMB Research

Daya Materials Berhad

Background
DMB is an oil & gas and engineering company based in Malaysia with presence throughout the Asia Pacific region. Our group is principally involved in provision of oil & gas products and services, engineering, specialized polymers as well as technical services. DMB is listed on Bursa Malaysia with a stock symbol "DAYA" and stock code "0091". Founded in 1994, DMB started out as a pioneer in the production and marketing of specialized polymers. From a small, single-line business, we have since expanded into downstream chemicals, specialized facility maintenance services, engineering & construction, crane & lifting services, tank cleaning & repairs, solvent & waste oil recycling, ventilation & energy services. Oil & Gas now represents our single largest and most important business. Our O&G services encompass such activities as offshore pipeline services, submarine cable-laying, automated welding, subsea installation & engineering, offshore manpower, marine HVAC, upstream chemicals and FPSO desludging. Through various strategic partnerships, we are now venturing into marginal oilfield/brownfield development, drilling & well services, fabrication, EPCIC, hook-up & commissioning and T&I. Today, DMB is a leader in downstream chemicals, specialized lifting & material handling services as well as subsea installation to the domestic O&G industry.Through our unrelenting focus on delivering world-class products and services to our customers, our vision is set firmly on establishing ourselves as the supplier of choice in the international oil & gas markets.At DMB, we believe in "unleashing today ideas for tomorrow growth" (sourced by:http://www.dmb.com.my/index.php/en/home)

Barakah Offshore Petroleum Bhd

Barakah is a direct proxy to PETRONAS’ Pan Malaysia Transportation & Installation (T&I) Package A play, according to Maybank. Maybank said it has a relatively new and modern Malaysia-flagged and-owned pipelay vessel to capitalise on T&I opportunities and the cabotage ruling advantage. Barakah is a growth stock, with a 3-year net profit CAGR of 28%. Maybank has assigned Barakah target price at RM1.00,their base-case target price is pegged to 12x FY15 PER, on a slight premium to small-mid cap O&G peers’valuations of 11x (with market capitalisations of sub-MYR3b). They initiating coverage with a BUY and MYR1.00 TP.

On a blue sky scenario, assuming that it wins Package A in a full contractor role, maybank FY15 net profit forecast would be higher at MYR100m (+45%) and Barakah target price would be MYR1.45 on an unchanged 12x PER target.

Barakah IPO listing price is RM0.65 (but the reference price is RM0.535 maybe got loan stock), according to Hong Leong, by applying a 14x multiple (which is their target multiple for small cap O&G companies) on FY14 EPS, their target price works out to RM0.80, implying a total upside potential of 23%.

Not many people have heard of Barakah IPO as I didn’t see them offer to the public via the normal IPO due to the reverse take-over. Not to worry on Vastalux, according to Barakah group president and CEO, Barakah are only assuming the stock number of Vastalux and will not be taking over any of its assets and liabilities.

Oil and Gas Counters

TOP PICK is SKPETRO (OP; TP: RM4.72). The expectation of M&A activities and contract flows should lend strength to valuations and thus, we maintain our Outperform call on: DIALOG (OP; TP: RM3.28); ALAM (OP; TP: RM1.91); DAYANG (OP; TP:RM6.06); COASTAL (OP; TP: RM2.90); PERISAI (OP; TP: RM1.76); YINSON (OP; TP: RM5.58); UZMA (OP; TP: RM3.64) PERDANA (OP; TP: RM2.04); GASMSIA (OP; TP: RM3.39); PANTECH (OP; TP: RM1.18); PCHEM (OP; TP: RM6.97); SEB (OP; TP: RM0.78). We are Neutral to UP on prospects of PETGAS (MP; TP: RM20.31), MHB (UP; TP: RM3.39); and WASEONG (UP; TP: RM1.73).