PERISAI : Maintain BUY at 54.5 sen with a TP of 70 sen

Acquisition to boost Perisai’s earnings

Perisai Petroleum Teknologi Bhd
Nov 10, 57.5 sen


Maintain buy at 54.5 sen with a target price of 70 sen: Perisai has announced to the stock exchange that it plans to collaborate with potential parties to either build or acquire marine vessels. This supports our anticipation of asset injection by Ezra Holdings. We think Perisai is unlikely to commit to a newbuild entity given the long construction time of one to two years.

We performed a comprehensive scenario testing based on different acquisition headroom given Perisai’s current financial strength. This was to analyse the earnings impact if an asset injection materialises in the near term. We took into consideration a base case in which Perisai issues new shares of up to 10% of its share capital under a cash-plus-share financing arrangement.

We then subjected Perisai’s financial position to different gearing levels to obtain different headroom for acquisitions. Finally, we made several interest expense and return-on-asset (ROA) assumptions to illustrate the potential earnings enhancement under the fixed assumptions mentioned above.

We concluded that even with the dilution effect from new share issuance, there will still be large earnings upside.

Conservatively, if we assume a ROA of 16% and interest cost of 6%, we could see a 33% to 129% upside to FY11 earnings. This is based on the different headroom assumptions for acquisitions.

We expect Perisai to leverage on Ezra’s fleet size and deep water expertise to penetrate the local deep water market. Ezra has a strong fleet of both anchor handling tug (AHT) and anchor handling tug supply (AHTS) vessels.

These vessels come under Ezra’s direct ownership, apart from sale and leaseback terms, and ownership through the company’s associates. An asset injection exercise, we believe, will likely come in the form of a cash-plus-share arrangement, similar to that for the Enterprise 3 vessel.

We estimate that subsequent to an issuance of new shares, Perisai could raise up to about RM262 million for acquisitions if it lifts net gearing to1.5 times, which is normal in this capital-intensive industry.

Deep water assets, in our opinion, are the vessels that Perisai would prefer to acquire to differentiate itself from other local marine operators.

However, we understand that Ezra also owns several Malaysian-flagged vessels under its 49%-associate Intan Offshore.

The company, incorporated in Malaysia, owns several AHT, AHTS and crew boats to cater for the local market. We believe there is a possibility of a consolidation exercise to merge its Malaysian operations.

Perisai’s current low earnings base implies large earnings upside from the acquisitions. We maintain our “buy” rating on Perisai shares for the company’s strong earnings growth, underpinned by an acquisition pipeline.

Our 70 sen target price for the stock is derived from the discounted cash flow of Enterprise 3, based on 30 years of useful life for the vessel. Our target price implies a price-to-book multiple of 1.6 times against the company’s historical five-year average of 2.4 times. — HwangDBS Vickers, Nov 10