KUCHING: Petra Perdana Bhd's (Petra Perdana) recent move to cancel the order of one anchor handling tug and supply (AHTS) vessel with 12,240 brake horse power (bhp) from Nam Cheong Dockyard was seen as a prudent move by analysts.

BEST INTERESTS: Petra Perdana comments that the cancellation is in its own best interests, in view of the low fleet utilisation and the possibility of prolonged low drilling activities.

ECM Libra Capital Sdn Bhd (ECM Libra) highlighted that this move was sensible as securing a new vessel sitting idle would only eat into the group's earnings.

“Taking on more vessels would only stress the group financially, no matter how it is financed,” opined a senior analyst from ECM Libra yesterday.

“Recall that Petra (Perdana) is suffering this year as it tries its level best to meet operating lease payments while AHTS fleet utilisation rates at some 65 per cent is not conducive for any profitability,” he added.

Petra Perdana commented that the cancellation was in its own best interests, in view of low fleet utilisation and the possibility of prolonged low drilling activities.

Following this move, it was also announced that a change in the group's utilisation of proceeds for the private placement would be made.

Originally, part of the private placement was meant to fund the delivery of this vessel. With its cancellation, part of the proceeds amounting to RM19.78 million would now be earmarked for working capital purposes.

Given ECM Libra's assumption that the vessel was to be funded off balance sheet and achieve only 65 per cent capacity utilisation at a low charter rate of US$1.70 per bhp per day, the research house forecasted that the group was going to make a loss on this vessel in 2011.

Therefore, removing this vessel from the research house's model would actually turn out to be an earnings enhancing move for the group.

RHB Research Institute Sdn Bhd (RHB Research) in its research report yesterday added that Petra Perdana would receive a full reimbursement of the US$8.85 million or RM28.19 million deposit.

The research firm added that the cancellation could be due to foreseen medium-term weaknesses in the offshore support vessels market. It had previously mentioned that although 50 per cent of the vessels demand arising from the replacement market was holding up, demand stemming from newer requirements remained weak.

Based on these recent moves, ECM Libra and RHB Research pegged a target price of RM1.26 per share and RM1.15 per share respectively for Petra Perdana.