PP10551/09/2011 (028936)

10 Aug 2011
OSK Research | See important disclosures at the end of this report

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MALAYSIA EQUITY
Company Update
Perdana Petroleum
Emerging Leaner
Investors may now regard Perdana Petroleum (Perdana) as a hidden jewel since the
company is recovering operationally although its share price has been languishing
near the bottom. We also see the company as a potential M&A target given that it
owns strategic assets such as work barges, work boats and deepwater AHTS, as
well as its attractive stock valuation (with a P/BV less than 1x). Finally, we expect
more improvement in its 2Q and 3Q results due to the better weather conditions over
the next few months, which will help to smoothen and facilitate O&G activities.
Maintain Buy with an unchanged fair value of RM1.50.

Operationally better but share price still near rock bottom. Both Perdana Petroleum
(Perdana)s operational profits and share price performance differ by a lot from its close
peers like Alam Maritim (Alam) and Tanjung Offshore (Tgoff). This is because these peers
have been recording good vessel utilization all this while, thanks to their long-term
contracts, while Perdanas utilization rate is only starting to rise from the bottom. Hence,
we believe there is a bigger upside for Perdana versus its peers as its low utilization is
being reflected in its share price. Also, the recent selldown of Perdana due to the negative
global stock market has made the stock even more attractive than before.

A hidden jewel. Perdana could well be a hidden jewel in the eyes of investors, as is
being reflected in its share price even after the company has been chalking up
improvements operationally for the last 3 quarters. Also, we believe that Perdanas
prospects are now different compared to in the past, when there was a tussle between the
company management and its major shareholders. This is because: i) the current
management team has full control of the company and is able to make timely decisions to
capture the opportunities that lie ahead; ii) there has been improvement in AHTSs charter
rates, iii) Perdana currently has a leaner fleet, and iv) the pace of O&G activities in
Malaysia as well as the global market is picking up since the global economy has
recovered from the global recession, which leads to higher demand for O&G.

Also a potential M&A target. We believe Perdana is a strong candidate to be partially or
wholly taken over because: i) it owns assets (i.e. AHTS, work barges and work boats) that
are vital to the O&G industrys development; ii) it has a fragmented shareholding, and iii)
its valuation is attractive at a Price/BV of 0.6x.

Maintain Buy. Our fair value for the stock remains unchanged at RM1.50 based on the
existing PER of 15x FY12 EPS. Going forward, we expect Perdana to announce better
operational performance q-o-q as 2Q and 3Q are usually the better quarters for O&G
activities in this region, supported by good weather conditions.

FYE Dec (RMm) FY08 FY09 FY10 FY11f FY12f
Revenue 669.6 605.7 254.9 344.0 387.8
Net Profit 84.9 29.3 -71.5 26.8 45.0
% chg y-o-y -45.5 -65.5 -343.7 -137.6 67.8
Consensus - - - 17.0 38.0
EPS (sen) 18.9 6.5 -15.9 6.0 10.0
DPS (sen) 2.0 2.0 2.0 2.0 2.0
Dividend yield (%) 3.3 3.3 3.3 3.3 3.3
ROE (%) 5.2 5.1 -13.4 5.2 8.3
ROA (%) 6.9 2.6 -7.3 2.9 4.2
PER (x) 3.3 9.4 -3.9 10.3 6.1
BV/share (RM) 1.94 1.90 1.70 1.76 1.88
P/BV (x) 0.4 0.3 0.4 0.4 0.3
EV/ EBITDA (x) 1.7 2.6 -24.0 4.1 3.1
.


OIL & GAS
Petra Perdana's principal activities are in the
provision of offshore marine support vessels
and brownfield services.
Stock Statistics
Bloomberg Ticker PETR MK
Share Capital (m) 450.12
Market Cap 276.82
52 week H | L Price 1.29 0.59
3mth Avg Vol (000) 2,794.9
YTD Returns -20.8
Beta (x) 1.27

Major Shareholders (%)
Lembaga Tabung Haji 9.35
Nam Cheong Dockyard 9.09




Share Performance (%)
Month Absolute Relative
1m -21.6 -20.6
3m -29.8 -32.7
6m -39.6 -40.6
12m -45.3 -51.3

6-month Share Price Performance


0.60
0.80
1.00
1.20
1.40
1.60
Jan-11 Feb-11 Mar-11 May-11 Jun-11 Jul-11

Investment Research

Daily

BUY
Price RM0.615
Fair Value RM1.50
Previous RM1.50
Jason Yap

+60 (3) 9207 7698

jason.yap@my.oskgroup.com




OSK Research
OSK Research | See important disclosures at the end of this report

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Why Perdana Petroleum (Perdana)? In comparison with the other 2 listed O&G peers in our coverage,
we prefer Perdana Petroleum over Alam Maritim (Alam) and Tanjung Offshore (Tgoff). Let us explain why.

Operationally better but the positives are not reflected in its share price. In comparison with its close
peers like Alam and Tgoff who have higher vessel utilization rates of about 70%-80%, Perdanas vessel
utilization rate dropped to below 50% 2 years ago due to the higher specifications for vessels which are
more suitable for deepwater developments, but back then, most new deepwater projects had been put on
hold following the global economic crisis and on unfavorable oil prices. Perdanas vessel utilization rate
had recently gone back up to above 50%. On these grounds, we expect to see more upside potential
coming from its operational performance recovery compared to its 2 peers since Perdana will be coming
up from the bottom rather than staying at the top.

Figure 1: Perdanas quarterly performance on improving trend

Source: OSK, Bursa

Figure 2: Perdanas improved performance has not been reflected in its share price
performance

Source: OSK, Bursa

A potential hidden jewel. We note that Perdanas share price has been going in a direction that is
opposite to its financial improvement since mid-2010. Currently, the stock is trading near its all-time low
despite there being positive developments within the company amid an increasingly benign external
environment. In fact, the share price is now trading at a level that is even lower than it was when the
companys management and its major shareholders were locked in a bitter dispute in Feb 2010. This is
what enhances the stocks appeal as a hidden jewel. However, what has changed between then and now
is: i) the current management team has full control of the company and hence is able to make more timely
decisions to avoid missing potential opportunities; ii) AHTS charter rates are currently on the mend, which
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
1Q10 2Q10 3Q10 4Q10 1Q11
RM'm
Perdana Alam Tgoff
-
0.50
1.00
1.50
2.00
2.50
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11
RM
Perdana Alam Tgoff



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OSK Research | See important disclosures at the end of this report

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enables Perdana to not only break even, but also make a small profit from it; iii) Perdanas fleet is now
leaner; and iv) O&G activities in Malaysia as well as the global market are picking up steam as the global
economy is recovering from the recession, which in turn spurred higher demand for O&G.

A potential M&A target. We see Perdana as a strong candidate to be partially or wholly taken over,
based on 3 main reasons: i) it owns assets (AHTS, work barge and work boats) that are important to the
development of the O&G industry; ii) has a fragmented shareholding, with its major shareholders who are
also the management team only holding about 12% of the company, and iii) all M&As are usually possible
only when valuations are attractive, with the stocks BV/share of RM1.08 and NTA/share of RM1.02
(based on its 1QFY11 results), giving a Price/BV of 0.6x. Compared with its peers, Alam and Tgoffs
BV/share are RM0.59 and RM1.25, giving a Price/BV of 1.3x and 0.7x respectively. Although Tgoffs
Price/BV is equally attractive, Perdana has more focused core businesses that complement each other
compared with Tgoff.

Figure 3: Perdanas BV and NTA comparisons versus peers, based on 1QFY11 results


Source: OSK, Bursa

Actively retiring old vessels to create a leaner fleet. The fact that the O&G industry is still experiencing
an oversupply of vessels gives oil majors a wider option of vessels to pick, which could in turn result in the
older vessels being over-looked. Thus to minimize the unnecessary operation costs of such old vessels as
they are unlikely to be chartered out, Perdana has put its old vessels on sale. There are still buyers for
such vessels, especially when they operate in less demanding or challenging operating environments.

Figure 4: 6 old vessels not in use

Source: OSK, Perdana

Also releasing unused vessels back to their lessors. This is part of Perdanas strategy to prevent
future losses in its bottom line. In fact, we understand that its lessors have been very accommodating and
have not subject imposed penalty charges for the vessels returned to them given their long-term
relationship as well as a closer potential business relationship in the coming future when both the demand
and charter rates for higher horse-power vessels go back to normal . We understand that Perdana
recently announced that it has returned 2 vessels - Petra Admiral and Petra Majestic.

A balanced fleet the ultimate target. To avoid potential operating losses in the coming futures should
the pace of O&G activities turn negative again, Perdanas management has taken pro-active steps to
maintain a balanced fleet of AHTS and brownfield vessels. Management sees that AHTS as more of a
wild card, but this could be smoothened by brownfield vessels, which provide more consistent earnings.





Company BV/Sh NTA/Sh Sh Pr P/BV P/NTA
Perdana 1.08 1.02 0.615 0.6 0.6
Alam 0.59 0.58 0.75 1.3 1.3
Tgoff 1.25 1.22 0.925 0.7 0.8
No AHTS Year BHP
1 IOS Castle 1982 12,720
2 IOS Elaine 1983 10,560
3 IOS Champion 1984 10,000
4 IOS Captain 1984 10,000
5 IOS Glory 1983 9,500
6 IOS Victory 1983 9,500



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Figure 5: Newer AHTS fleet Figure 6: Brownfield fleet

Source : OSK, Perdana



Source : OSK, Perdana

Working towards more Malaysian flagged vessels. When an offshore vessel support player bids for
new LT vessel contracts, we understand that they need to go through 2 stages the technical stage and
commercial stage. In order to qualify for the technical stage, a company must possess the required local
licence or locally flagged vessels. Hence, Perdanas management is actively taking steps to re-flag some
of its non-Malaysian flagged vessels to carry the Malaysian flag to enhance its bidding success rate.
Currently, about half of its new AHTS and brownfield fleet is Malaysian flagged.

Gradual improvement in charter rates. There has been gradual improvement in the charter rates for
AHTS in the past few months as O&G activities recover. There are also fewer unused vessels in the
market following the retirement of old vessels, as well as minimal new builds in the market as most new
vessel construction orders stopped since 2 years ago. Also, because there is need for real O&G fields for
development, the tenders being open for new vessel contracts are today more genuine than previously,
which mostly turned out to have been market surveys on charter rates to ensure that the customer does
not over-pay vessel charterers. Of course, we see it taking 2-3 years more for the charter rates to return to
their all-time high rates.

Figure 7: Oil price near USD70-USD80/barrel support level

Source: OSK, Bloomberg

Development of more O&G fields to spur demand for AHTS. Firstly, Petronass capex is expected to
be on a rising trend and with the crude oil price expected to stabilize at USD90-USD100/barrel, we believe
there would soon be more new O&G activities will crank up. We believe that Petronas and its PSC
contractors will continue to develop marginal oilfields like the Berantai, Balai Bentara, Cendor new phases
and a few other as well as deepwater fields such as Malikai and Kebabangan, and all these
developments would require new rigs, which would then ultimately lead to higher demand for Perdanas
AHTS. Besides the local market, we believe there are also opportunities for Perdana in overseas markets
such as Australia, with which it has past business relationships, especially given that the country is
focusing on natural gas development, which will stoke demand for its AHTS when platform structures
need to be built.

No AHTS Year BHP
1 Petra Marathon 2010 12,240
2 Petra Horizon 2008 10,880
3 Petra Voyager 2009 10,880
4 Petra Expedition 2010 10,880
5 Petra Adventurer 2008 10,800
6 Petra Traveller 2008 10,800
7 Petra Pioneer 2008 5,444
8 Petra Ranger 2009 5,220
9 Petra Frontier 2008 5,200
No Work Barge Year Men
1 Petra Excelsior 2010 300
2 Petra Superior 2010 300
3 Petra Odyssey 2011 300
4 Petra Enterprise 2001 200
No Work Boat Year Men
1 Petra Liberty 2009 168
2 Petra Sovereign 2010 168
3 IOS Jaguar 2004 85
50
60
70
80
90
100
110
120
Jan-10 Jul-10 Jan-11 Jul-11
USD/ barrel



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Figure 8: Petronass total capex spending on a sustainable and rising trend

Source: OSK, Various


OUR VIEW

Share price should have hit bottom. Both Perdanas operational performance as well as the external
operating environment are now better than 12 months ago and have yet to be reflected in its share price
to date. Hence we believe that prices should soon have bottomed out. For now, Perdana remains a
hidden jewel in the eyes of investors.

M&As (if any) to add excitement to the stock. We believe it would be a matter of time before its O&G
peers eye Perdana, either through joint venture, partnership or even mergers and acquisition. To recap,
Perdanas main attraction now are its low valuation (P/BV of <1x) as well as has strategic assets
(workboats, workbarge and deepwater AHTS).

2QFY11 and 3QFY11 results likely better q-o-q. We expect a better operational performance from the
company q-o-q as we understand that local O&G activities are expected to increase after 2 years of
slowdown back in 2009-2010. Also, 2Q and 3Q are usually the better quarters for O&G activities in this
region, supported by the good weather condition.

Maintain Buy. Our fair value for Perdana remains unchanged at RM1.50 based on the existing PER of
15x FY12 EPS. We view Perdana as a hidden jewel as the company has been improving operationally
since the last 3 quarters although investors may not notice this, as seen from continuous drop in its share
price to a level which is even lower than the level where there was a clash between the management and
board of directors of Perdana back in Feb 2010.
















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FYE Dec (RMm) FY08 FY09 FY10 FY11f FY12f
Turnover 669.6 605.7 254.9 344.0 387.8
EBITDA 194.4 131.1 -14.1 83.5 110.3
PBT 119.3 48.7 -72.3 35.8 62.5
Net Profit 84.9 29.3 -71.5 26.8 45.0
EPS (sen) 18.9 6.5 -15.9 6.0 10.0
DPS (sen) 2.0 2.0 2.0 2.0 2.0

Margin
EBITDA (%) 29.0 21.6 -5.5 24.3 28.4
PBT (%) 17.8 8.0 -28.4 10.4 16.1
Net Profit (%) 12.7 4.8 -28.0 7.8 11.6

ROE (%) 5.2 5.1 -13.4 5.2 8.3
ROA (%) 6.9 2.6 -7.3 2.9 4.2

Balance Sheet
Fixed Assets 468.8 740.0 608.4 504.3 572.7
Current Assets 688.3 398.4 216.1 521.2 550.8
Total Assets 1157.1 1138.4 824.5 1025.5 1123.6
Current Liabilities 160.3 236.7 166.2 263.5 323.5
Net Current Assets 528.1 161.6 49.9 257.7 227.3
LT Liabilities 419.4 337.4 153.5 239.4 241.4
Shareholders Funds 577.5 564.2 504.8 522.6 558.7
Net Gearing (%) 75.6 80.2 25.0 25.3 23.3

EARNINGS FORECAST


OSK Research









OSK Research Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated (NR): Stock is not within regular research coverage


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Kuala Lumpur Hong Kong Singapore

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