Perisai places order for third jack-up rig

by **Cals** Wed 15 Jan 2014, 14:29

Business & Markets 2014

Written by UOB KayHian Research

Wednesday, 15 January 2014 10:22

Perisai Petroleum Teknologi Bhd
(Jan 13, RM1.72)
Maintain buy at RM1.67, with revised target price of RM2.18 from RM1.72.Recall that Perisai had placed an order with SembCorp Marine (SMM) to acquire a high-spec jack-up rig (high temperature, high pressure) for US$208 million (RM678 million), to be delivered by July 2014.

While Perisai is close to securing its first jack-up rig contract, channel checks suggest that the charter rates could be much lower than our original forecast charter rate of US$190,000 per day as the contract may be longer in tenure.

We estimate that the rig contract will lift 2014 earnings by RM19 million (assuming a charter rate of US$150,000 per day).

On Dec 31, 2013, Perisai had announced that it had ordered its third jack-up drilling rig from PPL Shipyard, Singapore for US$211.5 million. Perisai will pay a 10% deposit to PPL Shipyard in the first quarter (1Q) of 2014 and will need to pay another 10% by end-2014 while the remaining 80% will be paid upon delivery.

Compared with its first two jack-up rigs, Perisai is paying an additional US$3.5 million for its third jack-up rig. We understand that jack-up rig builders are well booked for the next two years, so there is a chance for more price hikes as global demand for the asset remains strong. Hence, the purchase is timely to leverage on Petroliam Nasional Bhd’s (Petronas) asset localisation policy.

We are encouraged by the charter commencement of Perisai’s floating production, storage and offloading (FPSO) vessel after a delay since late-July. It marks the company’s entry into the FPSO segment and its transformation from a bareboat charterer to an operator. Early contributions from the vessel will be reflected in its results for the fourth quarter of financial year 2013 ended Dec 31 (4QFY13), reducing the earnings vacuum caused by two idle assets, namely its mobile offshore production unit (MOPU) and derrick pipelay barge.

Channel checks suggest that Perisai is currently vying for at least two potential contracts for its MOPU. We understand that on the domestic front, Perisai is tying up with Talisman Energy Inc to charter out its MOPU if Talisman secures a production sharing contract (PSC) in the PM9 oilfield, off peninsular Malaysia.

Industry publication Upstream online recently reported that Perisai is tying up with PetroVietnam Drilling to supply its MOPU to Petronas Carigali Sdn Bhd’s marginal oilfields in Vietnam called Ham Rong and Gau Chua-Ca Cao. While we are hopeful on both prospects, we gather that progress has been slow as the MOPU was previously designed for a gas field, hence it is a bit more challenging to charter it out.

We do not discount the possibility of an equity fund raising exercise in 2014 given the strength of Perisai’s share price. Recall that the company will need to fork out some RM500 million this year to pay for its first jack-up rig, to be delivered towards the end of the second quarter of 2014 (2Q14), and an additional RM500 million for its second jack-up rig in 2015.

For now, we assume that the company will raise the funds via debt in our earnings forecast.

We anticipate weaker sequential earnings in 4QFY13 due to the lack of charter income for its MOPU and derrick pipelay barge, although the weakness will be partially offset by maiden contributions from its new FPSO vessel (Perisai Kamelia) and its offshore support vessels.

For our earnings forecast for 2014, we are taking a conservative approach with our forecasts and impute merely six months’ contribution (previously nine months) from its MOPU and derrick pipelay barge, leaving some room for upgrades later if it secures a charter before end-2Q14. We are also including six months’ earnings contribution from its jack-up rig (assuming a charter rate of US$150,000 per day).

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For 2015, we assume full-year earnings contributions from its offshore support vessels, FPSO, MOPU, derrick pipelay barge and first jack-up rig.

We estimate that Perisai’s second jack-up rig could enhance our earnings forecast by RM19 million (assuming a charter rate of US$150,000 per day) if it is able to secure the contract by the end of this year. This will prompt further rerating for the stock in our view.

We reiterate our “buy” recommendation on Perisai with a higher target price of RM2.18 as we roll over our valuations to 2015 coupled with an earnings revision. Our target price is premised on 14 times 2015F price-earnings ratio and includes the option of securing a second rig contract.

We advocate investors to accumulate the shares if it weakens as the current share price has probably factored in the charter of its first jack-up rig.

We still believe that there is upside if Perisai is able to realise its full earnings potential. An ideal accumulation level will be in the range of RM1.40 to RM1.50. — UOB KayHian Research, Jan 13

This article first appeared in The Edge Financial Daily, on January 15, 2014.