Perisai Petroleum’s 1Q results expected to remain weak

by **Cals** Tue 08 Apr 2014, 12:56

Business & Markets 2014

Written by Hong Leong IB Research

Tuesday, 08 April 2014 09:39

Perisai Petroleum Teknologi Bhd
(April 7, RM1.62)
Maintain buy with unchanged target price of RM2.06: Perisai has fixed the price of its 108.4 million placement shares at RM1.53 each, representing 10% of the existing issued and paid up capital.
The exercise will raise RM166 million, which will be used for partial repayment of bank borrowings and capital investment for jack-up rigs.
To recap, the company had recently announced the purchase of its third rig from Sembcorp Marine, which is expected to be delivered in the third quarter of 2016 (3Q16).
The construction of Perisai’s first jack-up rig, named Perisai Pacific 101, is on track for delivery in May. We understand that the company is in the midst of negotiating with potential customers for what is likely a long-term contract.
We are optimistic that Perisai will secure a drilling contract before the delivery of the rig, and it will act as a rerating catalyst for the stock.
Perisai’s results for the first quarter ended March 31 of financial year 2014 (1QFY14) are expected to remain weak as its derrick lay barge, Enterprise 3 (E3), and mobile offshore production unit (MOPU) were out of work with an estimated burn rate of RM6 million per month for both vessels.
Perisai is the second largest jack-up rig provider in Malaysia with a total of three rigs expected to operate in FY16 (versus UMW Oil and Gas Corp Bhd’s eight rigs).
Given the robust drilling outlook with 14 foreign jack-up rig contracts expiring within one to two years, Perisai is well-positioned to benefit from it.
We advise long-term investors to look beyond FY14, with better earnings to filter through in FY15.
Perisai is a cheaper proxy to drilling-related stocks. Currently, Perisai is trading at 11 times calendar year 2015 price-earnings ratio versus UMW Oil and Gas’ 20 times.

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We deem the huge discount to be unjustified and expect the valuation gap between UMW Oil and Gas and Perisai to narrow going forward, once Perisai disposes of its E3 and securs a contract for its MOPU.
We maintain our “buy” call with unchanged target price of RM2.06 (based on unchanged 14 times FY15 earnings per share of 14.7 sen). — Hong Leong IB Research, April 7

This article first appeared in The Edge Financial Daily, on April 8, 2014.