PETRA Perdana : Maintain neutral at RM1.14, TP RM1.21

PETRA Perdana proposes 3:8 rights issue



Petra Perdana Bhd
(Sept 17, RM1.17)
Maintain neutral at RM1.14 with target price RM1.21: Last Wednesday, Petra Perdana (Petra) proposed a renounceable rights issue of up to 122.8 million new ordinary shares on the basis of 3:8 existing Petra Perdana shares at an issue price of 59 sen per rights share.

This represents a discount of 41% to the theoretical ex-right price of its shares calculated based on its five-day volume-weighted average market price. The ex-date for the right will be Sept 29. The rights issue is expected to increase the company’s share capital to about 450 million shares once the entire 122.8 million rights are taken up.

The rights share also comes with free detachable warrants on the basis of 1:2 rights shares subscribed. The exercise price for the warrant is RM1.

The rights issue is expected to raise about RM72.4 million, which we believe would likely be used for working capital purposes, such as to partly pay for its latest vessel, Petra Odyssey, a work barge. Earlier, Petra Perdana had indicated that it would use the proceeds together with the 10% private placement raised earlier for: (i) payment of refundable deposits in respect of the sale and leaseback of vessels; (ii) partial repayment of borrowings (total borrowings were RM445.1 million as at Dec 31, 2009); (iii) working capital purposes, and (iv) corporate proposal expenses. Petra Perdana now has 17 AHTS, four work barges and three work boats, bringing its fleet to 24 vessels, excluding Petra Odyssey.

This of course excludes three work barges and two work boats parked under its 29% associate, Petra Energy.

We maintain “neutral” with a target price of RM1.21 based on the existing PER of nine times FY2011 EPS.

However, on completion of the rights issue, it will drop to 94 sen in view of the earnings dilution from this issue and on our assumption that part of the proceeds will be used to repay some of its borrowings, hence, lowering its interest expenses accordingly. This compares with the theoretical ex-rights price of Petra, which will be 99 sen.

Also, based on our recent earnings downgrade, we expect its 2010 net loss to be about RM52 million, so we think this is a stock to look at in 2011 rather than now as we expect oil and gas activities to have cranked up by then. — OSK Investment Research, Sept 17

This article appeared in The Edge Financial Daily, September 20, 2010.