Perdana Petroleum (Jan 15, RM1.23)
(Jan 15, RM1.23)
Maintain buy at RM1.23 with a target price of RM1.68: Perdana has relinquished one of its barges, financed via a sale and leaseback arrangement, and will soon take delivery of two new builds as part of its ongoing effort at both fleet renewal and cost control. Our forecasts are unchanged. We value Perdana at 10 times financial year 2014 (FY14) price-earnings ratio, on par with valuations of its local peers.
Perdana has mutually agreed with Mount Bintang LLC to terminate the:
(i) bare boat charter agreement on Petra Excelsior, an accommodation barge (with a 70-tonne crane capacity); and
(ii) option to purchase the Panama-flagged vessel Petra Excelsior, built in 2010 which can accommodate 300 people and financed via a sale and leaseback arrangement.
It is currently on spot charter at a daily rate of US$25,000 (RM75,250). Utilisation is at a reasonable 80% we understand.
Relinquishing Petra Excelsior will see Perdana get back its US$8 million deposit but lose the estimated RM8 million to RM9 million in net profit per year it is currently earning. This is based on a US$10,000 profit per day assuming a daily all-in cost (sale and leaseback and operating expenses) of US$15,000. However, we gauge the income lost from Petra Excelsior will be compensated by new contribution of RM16 million to RM18 million earnings per year from the two new work barges (which cost US$29 million each).
The US$8 million deposit from Petra Excelsior will be used to fund these new builds, scheduled for delivery in the second quarter of 2013. Our earnings forecasts are unchanged for we have incorporated this into our estimates.
The new vessels are Malaysia flagged with a crane lifting capacity of 300 tonnes and we believe are designated to support Dayang Enterprise Holdings Bhd’s Pan Malaysian bids for Shell jobs. This exercise serves both to:
(i) maintain an ever younger fleet (average age drops from 4.25 to 3.7 years); and
(ii) reduce earnings volatility as these new builds are likely to be on long-term charter with Dayang. — Maybank IB Research, Jan 15
This article first appeared in The Edge Financial Daily, on Jan 16, 2013.