Perdana Petroleum Bhd
(May 22, RM1.51)
Maintain neutral with a target price of RM1.55: Perdana Petroleum’s normalised net profit for the first quarter ended March (1QFY15) came in below expectations, accounting for 8.8% and 10.7% of our and consensus’ full-year estimates respectively.

Perdana’s 1QFY15 earnings declined by 58.7% year-on-year to RM9.1 million due to the lower utilisation rate of vessels. Its vessel utilisation rate fell approximately 10 percentage points to 76% compared with the previous quarter. This was attributable to the slower contracts awarded this year.

Usually, after the monsoon season, contracts will be awarded accordingly. However, due to the low crude oil price and slower production activities, there have not been any contracts awarded for the period of January to April 2015.

As at now, the current outstanding order book for the group is approximately RM800 million.

We are revising downwards our earnings forecasts for FY15 and FY16 by a decrease of 32.9% and 10.9% respectively.

Our change in forecasts is based on the expected slower vessel activities in 2015 due to the low crude oil price.

As the oil price environment remains uncertain, any prolonged and continued decline in the oil price could result in oil companies cutting back on exploration budgets and moderating development capital expenditures. As expected, this has led to a slowdown in new project awards for Perdana.

We continue to maintain our “neutral” recommendation on Perdana with an unchanged target price of RM1.55 per share. Our “neutral” recommendation is based on the acquisition price by Dayang Enterprise Holdings Bhd.

We believe that the offer price might not be enticing enough for shareholders of the company who had entered during the bull cycle of the stock price, but could offer some upside for new shareholders with an average holding price below the RM1.55 level.

The offer price of RM1.55 is at an implied price-earnings ratio of 18.2 times. — MIDF Amanah Investment Bank, May 22

This article first appeared in The Edge Financial Daily, on May 25, 2015.