Perisai Petroleum Teknologi Bhd
(Aug 13, 34 sen)
Maintain hold with a reduced target price (TP) of 30 sen from 58 sen: Perisai Petroleum Teknologi Bhd’s first half of financial year 2015 (1HFY15) profit hit RM8.6 million, only making up 17% of Hong Leong Investment Bank Bhd’s and the consensus full-year forecasts.

Deviations were mainly due to a discount rate given to its Perisai Pacific 101 rig.

We estimate that the daily charter rate was revised from US$144,000 (RM577,627) to US$110,000 per day.

Quarter-on-quarter, second quarter of FY15 profit after tax and minority interests fell 77%, mainly due to lower charter rate commands for its Perisai Pacific 101 rig.

To recap, Perisai secured a three-year firm charter contract worth US$158 million from Petroliam Nasional Bhd, which translates into a charter rate of US$144,000 per day.

The current charter rate for jack-up rigs is hovering between US$100,000 and US$120,000 per day, which has fallen 20% to 33% since the middle of last year.

Hence, we have revised our daily charter rate assumptions from US$144,000 per day to US$110,000 per day for FY16 onwards.

We estimate the earnings before interest, taxes, depreciation and amortisation level to remain positive at US$110,000 per day, but profit before tax will barely break even.

In addition, given the current soft market, we expect Perisai to delay the delivery of its second rig from August to the first half of 2016 (1H16), which will provide more time to search for the potential contract before delivery.

Both its mobile offshore production unit (Mopu) and its Enterprise 3 (E3) barge remain idle since September 2013, with an estimated burn rate of RM3.3 million per month.

Given the correction in oil prices, we foresee difficulty to secure contracts for both vessels.

We have already assumed zero contribution from both vessels for FY15, and only assume a 50% utilisation rate for its Mopu in FY16, with the E3 likely to be disposed of by the end of the fourth quarter of 2015.

According to channel checks, the number of rigs in Malaysia has fallen from 15 rigs a year ago to seven to eight rigs currently.

Hence, we remain cautious about Perisai and expect to see pressure from its lower charter and utilisation rates.

Risks to our call include delay in contract award for the Mopu and execution risk.

Forecasts for FY15 and FY16 earnings have been reduced by 74% and 49% respectively, after taking into account lower charter rate assumptions for its jack-up rigs.

Catalysts include securing drilling contracts before rig delivery, new contracts for the E3 and Mopu, and expansion into the exploration and production segment.

We maintain our “hold” call with the TP adjusted from 58 sen to 30 sen, based on the unchanged eight times FY16 price-earnings ratio post earnings downgrade. — Hong Leong Investment Bank Bhd, Aug 13 

This article first appeared in digitaledge Daily, on August 14, 2015.