Target price raised to MYR1.80. Perisai is a direct beneficiary of PETRONAS’ import substitution opportunities for jack-up rigs in Malaysia. It will also gain wider traction and re-rate from the impending listing of an O&G company, which share similar business model. Our target price is now pegged to a higher 14x FY14 PER (11x previously), after we re-rate for its earnings growth prospect, steady balance sheet management and focused business development. Maintain Buy.

In an entrenched position to capitalize on drilling opportunities. The jack-up drilling activities in Malaysia is dominated by foreign operators. Of the 16 units in action, only one is Malaysia-owned (i.e. Naga 3, owned by UMW). With PETRONAS giving preference to Malaysia-owned companies, Perisai should have minimal difficulty to securing contracts for its 2 new jack-up rigs, which are scheduled for delivery in mid-2014 and mid-2015 respectively. Opportunities are abound, either from the import-substitution perspective or new field development. Perisai’s rigs are also designed to operate at high pressure, and high temperature conditions, a major plus.

Busy time ahead. We expect Perisai to secure a contract extension for its Enterprise 3 pipelay vessel (E3) beyond Jun 2013. The likelihood of an extension is high, in view of increasing offshore O&G activities. Perisai’s maiden rig contract should also be forthcoming by 4Q13. We expect charter rates to be decent at the ongoing USD160k-190k.day. Meanwhile, Perisai’s 51%-owned FPSO Arunothai is scheduled to be field deployed in 3Q13 for Hess’ North Malay basin operations while the disposal of its 49% stake in SJR Marine (which owns E3) will be completed around that period.

3-year net profit CAGR of 23%. Forward PER valuations of 10-13x are undemanding relative to its earnings growth prospects. There is room to raise earnings forecasts for we have not imputed profit contribution from its second jack-up rig. Overall, Perisai’s business model concentrates on production and drilling operations, these being its focus areas with the strategy to secure one major job every year without compromising its financial discipline. We reckon it will do well and re-rate when one of its O&G peer with similar business model goes for listing later this year.

Source: Maybank Research - 12 Jun 2013