Petra Perdana Bhd (Aug 13, RM1.38)
Maintain hold at RM1.35 with revised target price of RM1.26 (from RM1.20): Petra Perdana announced last Thursday it is cancelling the order of one AHTS (anchor handling tug and supply, 12,240bhp vessel) from Nam Cheong Dockyard (the group’s new major shareholder). The US$8.85 million (RM28.3 million) deposit it paid will therefore be refunded to Petra. The group says the cancellation is in the best interests of the company in view of low fleet utilisation and the possibility of prolonged low drilling activities. Following this, a change was announced in the group’s utilisation of proceeds for the private placement. Part of the private placement was meant to fund the delivery of this vessel. With the cancellation, RM19.78 million of the proceeds will now be earmarked for working capital purposes.

Given the group’s tight cash flows this year, we see the move as a prudent one. Taking on more vessels would only stress the group financially no matter how it is financed. Recall that Petra is suffering this year as they try their best to meet operating lease payments, while AHTS fleet utilisation at some 65% is not conducive to profitability. A new vessel sitting idle would only eat into earnings.

Given our assumption that vessel was to be funded off balance sheet and achieve only 65% capacity utilisation at a low charter of US$1.70 per bhp per day, we were forecasting that Petra was going to make a loss on this vessel in FY2011. Removing the vessel from our model actually turns out to be earnings enhancing for the group in FY2011 (+5%) and very slightly negative for FY2012 (-0.3%).