Perdana’s 1Q profit up on higher charter rates

by **Cals** Tue 27 May 2014, 00:35

Business & Markets 2014

Written by Affin IB Research

Monday, 26 May 2014 10:26

Perdana Petroleum Bhd
(May 23, RM1.81)
Upgrade to add with target price of RM2.08: Perdana reported strong first quarter ended March 31 of financial year 2014 (1QFY4) core net profit of RM20.7 million (+270% year-on-year [y-o-y]) on higher revenue and improved earnings before interest, taxes, depreciation and amortisation (Ebitda) margin.

The group’s 1QFY14 revenue grew by 53.7% y-o-y to RM87.3 million on higher charter rates, improvement in vessel utilisation and an increase in the number of vessels (a new work barge, SK310, commenced operations in February 2014).

As a result of the higher revenue and high operating leverage, Perdana’s 1QFY14 Ebitda margin improved significantly to 48.5%, from 28% in 1QFY13. The termination of sale and leaseback agreements for three vessels in 4QFY13 had further enhanced the group’s Ebitda margin (Perdana has since acquired the three vessels from the lessors).

Perdana’s 1QFY14 core net profit accounts for 22% of consensus’ and 24% of our full-year earnings forecasts. Overall, the results were within market expectations but above our forecast due to higher than expected vessel utilisation and operating leverage.

We expect the delivery of two new work barges (SK311 in May 2014 and SK312 in 3QFY14) to further enhance the group’s second half (2HFY14) earnings.

Sequentially, Perdana’s 1QFY14 core net profit jumped by 43.6% on higher charter rates, improvement in vessel utilisation and maiden earnings contribution from its new work barge SK310 that commenced operations in February 2014.

We have raised our 2014 to 2016 earnings per share forecast by 10% to 14% after imputing higher vessel utilisation rate and assuming timely delivery/minimal pre-operating downtime for its new work barges.

We roll forward our valuation horizon to 2015 and raised our target price to RM2.08 (from RM1.67) based on an unchanged 14 times forward price-earnings ratio.

Perdana’s share price has retraced by 6.7% since our rating downgrade in February 2014. The lower share price, coupled with stronger than expected earnings growth offers good upside potential. We are therefore upgrading our rating to “add” (from “reduce”).

We like Perdana for its strong management, modern fleet of offshore support vessels (OSVs), good earnings visibility (15 of its 17 OSVs are backed by long-term contracts) and the positive outlook on the domestic OSV sector.

Key risks to our positive view on Perdana are unexpected slowdown in domestic oil and gas activities, unexpected operational hiccups and sharper than expected derating when the group is removed from the syariah compliant list (we opine that Perdana is likely to be deemed non-compliant in the upcoming May review). — Affin IB Research, May 23

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This article first appeared in The Edge Financial Daily, on May 26, 2014.[/color][/size]