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.

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.