PACC Offshore Services Holdings - DBS Research 2016-11-08: Playing the waiting game

PACC Offshore Services Holdings - DBS Vickers 2016-11-08: Playing the waiting game PACC OFFSHORE SVCS HLDG LTD. U6C.SI

PACC Offshore Services Holdings - Playing the waiting game

  • Core losses increased q-o-q to US$12.9m in 3Q16 on general weakness across segments.
  • We expect further asset impairments in 4Q16.
  • SSAVs remain the key profit driver.



Well-captained ship in tough waters; maintain HOLD. 

  • While day rates and utilisation remain depressed, POSH is a more stable long-term bet versus peers, with no immediate debt concerns and positive operating cash flows YTD. The company has also demonstrated its ability to secure work for its vessels amidst an anaemic market (e.g. long-term contracts in the Middle East for 13 vessels). 
  • POSH’s SSAVs remain the key driver of profitability (or lack thereof) going forward, but visibility over their utilisation remains low. Thus, on a lack of visible near-term catalysts, we maintain our HOLD call with an unchanged TP of S$0.33.


No near-term liquidity issues. 

  • POSH had undrawn bank lines of c.US$365m as of 3Q16 – sufficient to cover its committed capex outstanding of US$151m. 
  • While net gearing may rise to ~0.7x from the current 0.6x after further asset impairments expected at year-end (assuming US$150m in impairments, similar to 4Q15’s amount), POSH’s debt profile remains relatively manageable versus peers; the absence of outstanding bonds, its positive operating cash flows sustained through the last three quarters and an already-extended term-loan profile (over twothirds of its loans have 5-7 year maturities) give us confidence in the company’s ability to weather the crisis.


Lowering our forecasts, but still expect FY17 to be a better year than FY16. 

  • We tweak our utilisation and day rate forecasts downward as these have deteriorated further, as well as push back our assumed commencement of the POSH Arcadia SSAV contract on slower progress at Shell’s Prelude FLNG project. 
  • We now expect core losses of c.US$7m in FY17 (vs. earlier forecasts of minor profits). 
  • Nonetheless, we do expect the progressive commencement of long-term contracts secured on 13 vessels in the Middle East and maiden contributions from the POSH Arcadia SSAV to help narrow core losses y-o-y in FY17.


Valuation

  • We maintain our HOLD call based on a 0.5x P/BV peg, with an unchanged TP of S$0.33.


Key Risks to Our View

  • Failure to secure/extend charter contracts for the SSAVs. Our model assumes that the POSH Xanadu is employed through FY17, while the POSH Arcadia should start its 6-month contract mid-2017. If contracts for the SSAVs are not renewed, or if there are delays, there could be downside risk to earnings.




Suvro SARKAR DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-11-08
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.33 Same 0.330




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