Results

• Within Expectation: 1QFY16 core PATAMI (excluding RM10.7m forex loss) stood at RM6.3m, accounting for 32% and 29% of our and street’s estimates.

Deviations

• It is deemed within expectations as we expect slightly weaker 2H results amid lack of O&G activity.

Highlights

• 1QFY16 core earnings weakened 10.7% YoY due to 2 major factors: (i) higher discount given for charter rate of Perisai Pacific 101 as a result of oil price slump and (ii) higher interest cost. This is being partially offset by stronger YoY Marine business (51%-owned). JV earnings were also stronger for the group due to slightly higher profit contribution from FPSO Kamelia.

• FPSO and OSV business segments continued to anchor the group’s earni ngs due to the slump in both drilling and pipelaying industry.

• Its MOPU, Rubicone is still idle and the group is currently looking for a buyer for the asset. This asset is currently classified under asset held for sale on its balance sheet.

• Perisai Pacific 102, which is due for delivery in the next 2 months, would be deferred by the company and it is still in talks with the shipyard for further deferment. As the group has previously written off its rig deposits in 4Q15, further impairment risk remains low for this particular asset.

• Delivery date for Perisai Pacific 103 has been further delayed to Oct 16 from Jul 16 as agreed with the shipyard. We believe that the group would not risk taking delivery of any drilling asset as long as no contract is secured for the assets.

• The group also possesses the put option to dispose off remaining 50% stake in its currently loss-making E3 barge to EMAS offshore, which has been agreed at US$40m, timely for the group under the current turbulence to repay its borrowings.

Risks

• Delay in contract award for MOPU and execution risk.
• Rig delivery in absence of charter contract

Forecasts

• Maintained

Catalysts

• Securing drilling contracts before rig delivery.
• New contracts for E3 and MOPU.
• Expand into E&P segment.

Valuation

• We maintain Sell call on the stock with TP maintained at RM0.225 pegged at 0.5x to FY16 BVPS.

Source: Hong Leong Investment Bank Research - 20 May 2016