(Jan 3, RM1.10)
Upgrade to trading buy at RM1.06 with target price of RM1.09: Petra Perdana (Petra) has bucked our expectations of a further decline due to poor earnings, rising 40% since its 3Q results. Shares have been rising on talk of mergers and acquisitions as well as the recently dropped lawsuit instituted by former directors. On sentiments, we view that 2011 could be a better year for vessel players, as the many roll-outs of contracts to develop and redevelop offshore Malaysia will give rise to demand for vessels.
Petra reports that its latest total fleet utilisation stands at 55% for the 9MFY10 period. While no major long-term jobs have been inked, its newer vessels are seeing some spot charters, albeit not at attractive rates, hence the continued losses. Dragging down the group’s utilisation is its AHTS fleet, with old vessels largely idle. However, its workboat and work barge fleet is 65% engaged, as they are locked in for jobs. We view that AHTS charters will only have a chance of picking up when major jobs like Tapis or Malikai come into play offshore Malaysia. Otherwise, with major projects still in the planning stages, there will be no hurry to engage vessel fleets just yet. As such, we view that recovery in Petra’s earnings may materialise come mid to late-2011.
Given the company’s current loss-making situation, we view it unreasonable to use price-earnings ratios for valuation. Also, given talk of Petra being a takeover target, it further justifies using its net tangible assets as a valuation basis. As such, we now value Petra at its FY11 prospective NTA of RM1.09 (previous target price of 42 sen based on FY11 non-diluted earningsd per share pegging an 11 times PER).
With our change in valuation methodology, we are raising our call on Petra to a “trading buy”. Our rationale for the call is that there could be a corporate exercise on the cards. We view that while the group’s AHTS may not be an attractive sell at the moment, given slow demand in the market, its work boats and barges could pique the interest of potential suitors in the maintenance business. Further catalyst for a sale is that earnings are still precarious and Petra continues to need cash to meet its operating lease commitments. — ECM Libra Investment Research, Jan 3
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