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Tuesday, June 18, 2013

Perisai (2.00) - Not the usual drill (CIMB)

Although drilling is a new business for Perisai, the company is making its presence felt by building two jack-up rigs. These new assets, along with an FPSO vessel, will allow the company to secure stronger growth from FY14 onwards and enjoy record net profits until at least FY16.

Our target price (2.00) rises as we raise our FY14-15 EPS to impute the new assets. We reduce our FY13 EPS to factor in lower contribution from a pipelay barge. We continue to value the stock at a CY14 P/E of 15.6x, which is a 30% discount to the P/E of oil & gas big-caps. Perisai remains an Outperform and our top small-cap oil & gas pick. Successful drilling and FPSO ventures are potential re-rating catalysts.

Beneficiary of import substitution model
We left our recent meeting with Perisai's MD, Izzet Ishak, feeling more bullish about the company's
earnings prospects. The jack-ups are still undergoing construction and will only be delivered in Jul 2014 and 2Q15 but an acute shortage of Malaysian-flagged jack-ups ensures immediate deployment of the assets once construction is completed. Perisai is indeed capitalising on Petronas's import substitution model, which favours local companies with assets that are currently supplied by foreigners.

Aggressive fleet expansion
The jack-ups provide a new growth platform for Perisai, which has swiftly expanded its fleet from just one asset to ten since Izzet took over the company's leadership in Apr 2010. More importantly, the new assets facilitate the transformation of the company's business model from a bareboat chartering structure to an operational model. Izzet is growing Perisai just like he grew pre-merger SapuraCrest ten years ago, in our view.

Cheaper exposure to vibrant sector
Our revised FY15 EPS is 10% above consensus, which has yet to fully impute the jack-ups' contributions. Despite a 27% expansion in share base, Perisai's 3-year EPS CAGR is commendable at 13.8%. Also, the stock provides cheaper exposure to the vibrant Malaysian oil & gas sector, trading at 10-15x FY13-15 P/Es, substantially lower than the sector'saverage of 18-24x.

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