Pacific Radiance - DBS Research 2016-11-10: Still a risky bet

Pacific Radiance - DBS Vickers 2016-11-10: Still a risky bet PACIFIC RADIANCE LTD. T8V.SI

Pacific Radiance - Still a risky bet

  • Core losses remain elevated at US$16.1m in 3Q16.
  • OSV segment revenues down sharply (28% q-o-q).
  • Fourth quarter of negative operating cash flows.



Maintain FULLY VALUED on the back of another weak quarter and deteriorating outlook. 

  • PACRA’s OSV segment continues to face strong headwinds, reporting record-low revenues in 3Q16.
  • The outlook for 2017 remains bleak in our view as oil majors are guiding for lower capex y-o-y, and the OSV-to-rig ratio remains at record highs. 
  • Additionally, operating cash flows have been negative for four consecutive quarters now; hence the gross cash balance remains low at c.US$30m. The looming maturity of PACRA’s August 2018 S$100m notes remains a medium-term risk. 
  • A refund from the Chinese yards of c.US$11m expected in 4Q16 on deposits for terminated PSV contracts could help boost the cash balance temporarily, but does not address PACRA’s core issues. 
  • We continue to advocate avoiding the stock, maintaining our FULLY VALUED call with a revised TP of S$0.12.


3Q16 results highlight difficult OSV market. 

  • Core PATMI losses remained flattish q-o-q at US$16.1m in 3Q16, as higher gross losses and interest costs were offset by lower core opex as well as a slight profit from JVs of US$0.8m. However, the major disappointment was lower revenues from the OSV segment (down 28% q-o-q/51% y-o-y to US$13.5m) as utilisation and charter rates took further hits. 
  • While better performance from the subsea vessels partially offsets this, due to the short-term nature of subsea/IRM work, the effect may be temporary. We thus see risk to revenues/earnings going forward.


Expect losses to persist in FY17. 

  • To account for poorer-than-expected performance at the OSV segment, we widen our forecasts of core net losses in FY16/17 to US$54m/US$58m respectively. 
  • FY17 revenues are expected to be lower y-o-y on poorer OSV segment takings.


Valuation

  • Despite the weak earnings, our TP is tweaked to S$0.12 based on a higher P/BV peg of 0.2x – in line with the weaker peers in the region and reflecting a slight uptick in valuations in the run-up to the crucial OPEC meeting on 30 November.


Key Risks to Our View

  • A sharp spike in oil price – albeit unlikely in our view – could result in uplift in utilisation and day rates for vessels, boosting earnings and the share price.




Suvro SARKAR DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-11-10
DBS Vickers SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 0.12 Up 0.110




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