Perdana announced yesterday that its wholly-owned subsidiary Petra Offshore Limited (POL) had on 25 Feb 2013 entered into an agreement to dispose of 7 old Vessels (with average age of approximately 30 years) to PT Ninda Pratama Vriesindo, Indonesia for a total consideration USD3.45m. As we mentioned earlier in our previous note, Perdana is expected to save about RM10-12m annually in maintenance cost, consequently increasing bottom-line by about 11% for FY13/14. We believe the worst is over for Perdana, which is now on track to deliver steady income growth going forward, fuelled by vast improvement in utilisation rates and long-term charter agreements.

Strengthening assets. Our recent meet up with Dato Henry reveals that Perdana intends to own a total of 20 vessels going forward. We understand 2 new work barges are expected to be delivered by year end apart from the 2 new deliveries in April and May as part of the fleet renewal programme. According to management one of its work boats (Perdana Liberty) will be undertaken as sale and leaseback to refinance newly-acquired vessels.

Still looking for firm contracts. Perdana is actively seeking long-term agreements for the untaken 3 units of AHTS vessels (1 unit of 10k bhp and 2 units of 5k bhp) which are currently on spot charters. We are confident of Perdana securing more long-term charters given oil and gas majors increasing demand for deepwater vessels.

Reiterate Outperform call. We are raising our TP to RM1.70 from RM1.50 previously to incorporate the stronger than expected earnings due to these cost savings. Perdana remains one of our preferred exposures to the sector for its position to leverage on its newer fleet and strengthening demand for mid-sized AHTS vessels. Our valuation of Perdana is based on a discounted cash flow (DCF) valuation method by using a weighted average cost of capital (WACC) of 10.1% until 2032 based on a 19-year life expectancy of the vessels.

Source: PublicInvest Research - 28 Feb 2013