Exceptional turnaround for Perdana Petroleum

by **Cals** Mon 30 Dec 2013, 11:55

Business & Markets 2013

Written by CIMB Research

Monday, 30 December 2013 10:01

Perdana Petroleum Bhd
(Dec 27, RM1.57)
Maintain add at RM1.46 with a target price of RM2: Perdana Petroleum has taken delivery of its 16th vessel — a work barge named Perdana Protector — which will be deployed to Dayang Enterprise Holdings Bhd for a long-term contract. This wraps up a year of exceptional turnaround following several washout years. Keep an eye on Perdana Petroleum as it takes on more deliveries next year.

We continue to value the stock at a calendar year 2015 price-earnings ratio (PER) of 15.8 times, applying a 30% discount to the average PER of the oil and gas big caps. The stronger earnings uptick expected in financial year 2014 ending Dec 31 (FY14) is the potential rerating catalyst that supports our “add” call.

During our meeting with Perdana Petroleum’s management on Dec 23, we learned that the company recently took delivery of its 16th vessel and is set to add two more work barges to its fleet next year.

We are encouraged that its fleet expansion programme is on track. The operating environment in the marine support space has been very conducive, with improvement in both charter and utilisation rates.

Perdana Petroleum currently fetches a charter rate of around US$2 (RM6.58) per horsepower (HP) for a 5,000HP anchor handling tug supply vessel, higher than US$1.50 to US$1.80 netted last year.

The company’s utilisation rate shot up to a robust 83% in the third quarter of FY13 from an estimated 74% in 3QFY12.

Now that it has taken delivery of Perdana Protector, the average age of Perdana Petroleum’s young fleet has reduced to less than four years. Around 65% of its working vessels are on long-term charters, including those with Dayang Enterprise, which is Perdana Petroleum’s largest shareholder.

Perdana Petroleum has so far deployed four vessels to Dayang Enterprise, with a fifth one, Perdana Protector, to follow suit effective February 2014.

Accumulate the stock and ride the wave of improvement in Perdana Petroleum’s utilisation and charter rates, which support the company’s earnings turnaround in FY13. We expect the positive momentum to continue in FY14 as the company expands its fleet. — CIMB Research, Dec 24

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This article first appeared in The Edge Financial Daily, on December 30, 2013.