Perdana Petroleum (Trading Buy, TP:RM0.48, SL: RM0.36)
• Perdana Petroleum shares (which closed at 41.5 sen last Friday) are showing a positive bias. The stock is presently hovering at the lower range of an upward sloping price channel that stretches back to May 2019.
• Riding on the technical momentum, its share price could climb to test the Nov 2019’s high of 48 sen (R1). A breakout from this threshold could then send the stock to challenge the Mar 2019’s peak of 54 sen (R2). This represents potential upside of 15.7% and 30.1%, respectively.
• In terms of downside risk, we have identified key support levels at 36 sen (S1) and 30 sen (S2).
• Perdana Petroleum is a beneficiary of rising oil prices, which are showing signs of renewed upward momentum amid the escalating geopolitical risk in the Middle East.
• Perdana Petroleum (which is involved in the provision of marine support services such as the provision of vessels for the upstream oil & gas industry) will likely secure more contract wins on the back of increased capex spending by oil majors as oil prices climb further.
• The Group is in a position to leverage on its business relationship with major shareholder Dayang Enterprise, which holds a 60.5% stake in Perdana Petroleum and is in the business of provision of maintenance services and chartering of marine vessels for the oil and gas industry. Last Thursday, Perdana Petroleum announced that it has been awarded contracts RM50m to charter its vessels to Dayang Enterprise.
• The Company has just completed a rights issue proposal involving the issuance of 1.46bn Redeemable Convertible Preference Shares (RCPS) on 8 Jan 2020. The fund-raising activity (with total proceeds of RM476m) represents part of a group-wide debt restructuring exercise. On a pro-forma basis, this would have cut its gearing from 1.08x (as of end-Sep 2019) to 0.15x post-the rights issue exercise.
• Whilst Perdana Petroleum is currently loss-making (with its results for 9-month ended Sep 2019 showing a net loss of RM20.3m), the Group posted a net profit of RM18.1m in the most recent quarter of 3Q19 (partly attributable to an oneoff exceptional gain of RM10.6m).
• Its bottomline is expected to get a lift from: (a) interest savings following the debt settlement. In its circular to shareholders, the Company estimated gross interest savings of RM31.3m arising from the corporate exercise; and (b) higher vessel utilisation rate, which has increased from 79% in 2Q19 to 91% in 3Q19.
• Based on its pro-forma book value per share of RM1.16 (as of Sep 2019), the stock is now trading at PBV of 0.36x.
Source: Rakuten Research - 13 Jan 2020