Perisai  continues  to  be  weighed  down  by  its  idle  assets,  with its  two jack-up  rigs  yet  to  be  delivered  and  potentially  facing  difficulties  in securing  charter  contracts.  Reiterate  SELL  due  to  a  lack  of  earnings visibility,  with  a  lower  MYR0.35  TP  (23.9%  downside),  based  on  8x FY15F  P/E.  We  reduce  our  FY15/FY16  earnings  estimates  by  28%/23%respectively.

MOPU and DLB  still unutilised.  Two of Perisai  Petroleum Teknologi’s (Perisai)  assets are still idle with no contract wins in sight. Management has  guided  that  Perisai  is  tendering  for  jobs  for  its  mobile  offshore production  unit  (MOPU),  Rubicone,  as  well  as  its  derrick  lay  barge (DLB),  Enterprise  3.  However,  we  remain  cautious  on  the  prospect  of obtaining  new  contracts  as  these  two  assets  are  old  and  of  lower specifications. In a low crude oil price environment,   we believe efficiency and cost-saving measures are key to obtaining contracts. Therefore, we believe  that  Perisai  faces  an  uphill  battle  to  win  contracts  for  the  two aging vessels. Note that  as we did not factor in any job wins for the two vessels,  an  unexpected  contract  win  could  provide  an  earnings  upside 
for Perisai. 

Can PP102 get a contract? Recall that Perisai’s first jack-up rig, Perisai Pacific 101  (PP101),  was chartered by Petronas for three years starting from Aug 2014. Perisai has two more jack-up rigs to be delivered in  the middle of 2015 and 2016. According to IHS Petrodata, which provides a weekly rig count, South-East Asia’s  rig utilisation  and  average day rates are coming down slightly MoM and YoY. This is due to the lower crude oil  price  resulting  in  field  operators  scaling  back  on  their  capex  and drilling activities.  In addition, there are 10 jack-up rig  contracts  that are due  to  expire  in  2015  in  Malaysian  waters,  which  we  believe  may  put further  pressure  on  PP102  obtaining  a  charter.  We  have  given  the company the benefit of the doubt and factored in 100 days of charter for 2015, but we recognise that this presents a downside risk if the charter contract does not materialise.

Maintain SELL with a  lower TP of MYR0.35. We make no changes to our  FY14  earnings  forecast  but  lower  our  FY15/FY16  estimates  by 28%/23% respectively,  as we lower our charter assumptions for the idle assets  as  well  as  PP102. We  value  Perisai  at  8x  FY15  P/E,  the  lower end  of  our oil  and  gas  sector  valuation  multiples  given  the  diminishing prospects of new contracts for its idle assets and forthcoming new rigs in the current weak crude oil price environment. We arrive  at a lower TP of MYR0.35 (from MYR0.88). Maintain SELL.

Rig contracts expiring. According to Bloomberg, 10 jack-up rig contracts are due to expire in  Malaysian waters in   2015.  Of the 10 rigs, four  of  the rigs are chartered by Petronas and one out of the four will be expiring in the first half of the year, which we believe  may  put  further  pressure  on  Perisai  to  charter  out  PP102.  Note  that  the newest  rig  aged  only  2.3  years  is  operated  by  EnQuest  (ENQ  LN,  NR)  on  a  spot basis for USD145,000 per day. This is USD20,000 less than its previous assignment with Salamander Energy (SMDR LN, NR) in the Gulf of Thailand.

Will PP102  get a contract?  Although there is a possibility  that Perisai might not be able to garner a charter contract for its second jack-up rig, we are inputting 100 days of charter for the vessel  in  a conservative base-case scenario. The downside risk to our assumption is  PP102  might not get a contract at all throughout the year,  which could  result in  further  earnings  downgrade.  An  upside  to  our  assumption  will  be  if PP102 manages to secure a contract after its delivery, resulting in an earnings uptick if the vessel manages to secure more than 100 days of charter. We would also like to point out that Perisai’s earnings are highly dependent  on PP102’s ability in  obtaining a  contract.  Figure  3  below  shows  a  sensitivity  analysis  of  the  effect  on  Perisai’s earnings if PP102 is chartered for a certain number of days. 

FPSO  and  OSV.  Perisai  currently  has  nine  offshore  support  vessels  (OSVs)  in  a 51:49 JV with EMAS Offshore (EMAS SP, NR), of which four of the vessels’ charters were  recently  extended  to  2017,  ie  Bayu  Intan,  Lewek  Eagle,  Lewek  Mallard  and Lewek Swift. Floating production, storage and offloading (FPSO) Perisai Kamelia has been operating in the North Malay Basin and is on a firm 3-year contract – expiring in end-2015  –  for  a  total  value  of  USD272m  with  a  3-year  optional  extension  worth USD271m.

Scenario analysis.  As we did not impute  any contract wins for the DLB  and  MOPU, an unexpected  contract in  could  provide an upside to Perisai’s  FY15  earnings. We have also only factored in 100 days of charter for  PP102.  An early contract win and delivery of the jack-up rig  could  provide  an upside to  our FY15 forecasts. According to RigLogix,  PP101  commands a daily charter rate of USD144,000.  In the event that there is a 15% downward revision in charter rates for  PP102, this  could  result in a downside  of  6%/13%  to  FY15/FY16  earnings  forecasts  respectively,  assuming  100days  of  charter  in  2015  and  360  days  in  2016.  We  provide  a  scenario  analysis in Figure 4 below:

In  our  current  earnings  assumption,  we  have  assumed  zero  charter  days  for  the MOPU  and  DLB  and  only  inputted  100  days  for  the  PP102  jack-up  rig.  In  our scenario analysis, we presented four scenarios. In the event that  Perisai manages to clinch a 100-day charter contract for either the MOPU or DLB, this  could result in an uptick  in  FY15  earnings  by  16%  or  10%  respectively.  If  both  assets  managed  to secure a 100-day contract, this could result in an upward earnings revision of 26% for Perisai.  Note  that  PP101  was chartered out for a daily charter rate of USD144,000 and PP102,  due for delivery sometime in Jul  2015,  has not secured any contract yet and  there  is  a  possibility  that  there  will  be  a  negative  revision  in  charter  rates.  If Perisai manages  to  secure  a  100-day contract  for  PP102  but  at a  15% lower  rate compared to that of PP101, this could result in FY15 earnings being lower by 6%.

Risks.  Delays in contract awards as well as the threat of lower charter rates  could potentially  hurt  Perisai’s  FY15  numbers.  The  idle  assets  will  also  be  incurring expenses up to MYR2m including  depreciation, interest, berth costs  and manpower expenses per month while being idle.

Investment  case.  As  we  value  our  oil  and  gas  counters  at  8-13x  P/Es,  we  are valuing Perisai at the lower end of our valuation multiples as we believe there couldstill be downside to its earnings due to the looming threat of lower charter rates for its jack-up rigs,  an oversupply in the market,  and a  lack of earnings visibility for its idle assets.  All  in,  we  maintain  our  SELL  recommendation  on  the  counter.  We  may change  our  recommendation  should  there  be  more  earnings  visibility  for  its  idle assets.

Source: RHB