PERISAI Petroleum lean and mean

Perisai Petroleum Teknologi Bhd
(June 29, 54 sen)
Initiate coverage with a buy call at 54 sen and target price of 70 sen: Perisai has been shedding its non-core and non-profitable assets to achieve a leaner structure to focus on acquiring specialised assets for local deepwater projects. The next deepwater fields (Malikai and Kebabangan) earmarked to come onstream will cost over RM10 billion to develop. We believe Perisai’s new managing director, Zainol Izzet, is the right person to steer the company into the deepwater segment given his past experience as CEO of SapuraCrest Petroleum. Separately, Perisai’s crown jewel — a derrick pipelay barge (E3) — has a long-term charter contract ending mid-2013, thus providing clear earnings visibility.

We understand that Perisai is looking to acquire vessels that can cater to Petronas’ deepwater fields. In our view, this could be in the form of asset injection by Ezra Holdings. Perisai is leveraging on Ezra’s fleet size and deepwater expertise to penetrate the local deepwater market. Ezra is the second largest shareholder in Perisai after acquiring a 19.9% stake for RM64 million or 48.5 sen per share in April 2010.

We initiate coverage with a buy call, current valuation cloud potential return from E3. Given the long-term cash flow that E3 will generate, we value the stock on a discounted cash flow method and derive a 70 sen per share value. We believe the market has not fully priced in the value of E3 nor the superior margins it commands (Ebit margin: 41% versus peers’ 19%), considering the niche market and small supply of locally flagged pipelay barges. Our scenario analysis on a vessel acquisition of US$100 million indicates significant earnings upside for Perisai. — HwangDBS Vickers Research Sdn Bhd


This article appeared in The Edge Financial Daily, June 30, 2010.