PACC Offshore Services Holdings - OCBC Investment 2016-11-08: More impairments ahead

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PACC OFFSHORE SVCS HLDG LTD. U6C.SI

PACC Offshore Services Holdings - More impairments ahead

• Results below expectations
• Market conditions deteriorate
• Impairments likely in 4Q16 

Net loss of S$12.9m in 3Q16 

• PACC Offshore Services Holdings (POSH) reported a 48% YoY drop in revenue to US$41.6m and a net loss of US$12.9m in 3Q16, bringing 9M16 net loss to US$26.0m vs. our full year estimate of US$18.5m net loss and the street’s estimate of a US$3.8m net loss. 
• For the first time since the company was listed, it reported a gross loss of US$1.4m vs. gross profits historically. 
• Finance costs also increased by 55% YoY due to higher loan balances and higher interest rates in 3Q16.

Weaker P&L metrics but still positive operating 

• CF Market conditions continued to deteriorate and gross loss of the OSV division continued to grow QoQ, from US$2.7m in 2Q16 to US$4.4m in 3Q16. This segment saw utilisation of 59% in 3Q16 vs. 74% in 3Q15. 
• The Transportation & Installation (38% utilisation vs. 60% in 3Q15) and Offshore Accommodation (36% utilisation vs. 74% in 3Q15) segments also reported poorer performances on a sequential basis, but at least remained in gross profit territory. 
• Despite the poor P&L showing, the group continued to generate positive operating cashflow of US$8.5m in the quarter, bringing total operating cashflow to US$39.1m in 9M16 vs, US$30.7m in 9M15.

To see impairments in 4Q16 

• Looking ahead, the carrying value of the goodwill arising from the acquisition of PSA Marine’s offshore business in 2007 and the carrying value of POSH’s fleet of vessels will be impaired; this amount will be determined at year end. 
• Currently POSH has US$168.3m of goodwill (all relates to PSA acquisition) in its books and fixed assets of US$1.33b. Recall that the group made an impairment of US$127.0m and US$21.4m on goodwill and fixed assets respectively in 4Q15.
• Meanwhile POSH had net gearing of 0.6x as at end Sep and also has available undrawn bank lines of about US$365.8m. 
• We fine tune our estimates and our fair value estimate rises slightly from S$0.29 to S$0.30 (0.45x FY17F NTA) as we roll forward our valuations. Maintain HOLD.

Low Pei Han CFA OCBC Investment | http://www.ocbcresearch.com/ 2016-11-08

OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.30 Up 0.290