Perdana Petroleum’s sturdy order book to sustain earnings

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KUCHING: Perdana Petroleum Bhd’s (Perdana Petroleum) strong order book of approximately RM1.1 billion is poised to sustain the company’s earnings for the next few years.

The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) yesterday said the company’s fundamentals remain intact supported by long-term charter contracts extending up to 2019. Additionally, Perdana Petroleum’s charter contracts consist mainly production assets or brownfield oil and gas (O&G) assets in Malaysia.

MIDF Research explained that the contracts are less risky than those in the exploration stage during the current low oil price environment as producing brownfield assets will still operate in order to sustain or increase production rates to counter declining prices.

Besides that, the research firm noted Perdana Petroleum’s clientele consists of high-quality O&G companies which include Petronas Carigali Sdn Bhd, Murphy Sabah/Sarawak Oil Co Ltd (Murphy Oil), Talisman Malaysia Ltd, Sarawak Shell Bhd, Dayang Enterprise Holdings Bhd and UMW Oil and Gas Corporation Bhd.

As for the company’s fleet, MIDF Research observed that Perdana Petroleum has the highest average brake horsepower (bhp) at 9,635 bhp for its anchor handling tug supply (AHTS) vessel compared with local peers.

Furthermore, the research firm noted the company’s average age of its vessels is just 4.2 years old, which is relatively ‘young’ and well within Petronas’ preferred age threshold of 15 years old.

Moreover, MIDF Research said the company is also on a continuous fleet expansion and rejuvenation exercise to replace its older vessels and to upgrade its fleet to meet client’s requirements.

Similarly, the research firm said Perdana Petroleum will be taking delivery of two units of 500 person accommodation work barges (AWB) in first quarter of 2016 (1Q16) and 2Q16.

Ironically, the research firm said with the delivery of the two AWB in 1Q16 and 2Q16, Perdana Petroleum would be the only company in the Southeast Asia region to have those vessels.

Apart from that, it noted Perdana Petroleum has the option to buy another two units of similar AWB which is scheduled for delivery in the second half of 2016.

Moving forward, the research firm noted that the trend will be for the need of larger AWB for more than 450 people.

It explained that the need is to cater for more offshore activities and to regulate offshore production costs.

On another note, the research firm believes that crude oil price could rebound in the medium term to equilibrium levels between US$60 per barrel to US$70 per barrel based on global O&G asset breakeven and fiscal breakeven levels.

At that time, MIDF Research expects the O&G stock valuation to experience a re-rating catalyst should global crude oil prices rebound to even higher levels due to renewed investor confidence and positive sentiments.

At RM1.15 per share, MIDF Research observed that Perdana Petroleum’s share price traded at a very attractive valuation of just 8.9 times price-to-earnings ratio, presenting good investment for investors.