PACC Offshore Services Holdings - DBS Research 2016-12-05: Favoured operator

PACC Offshore Services Holdings - DBS Vickers 2016-12-05: Favoured operator PACC OFFSHORE SVCS HLDG LTD. U6C.SI

PACC Offshore Services Holdings - Favoured operator

  • Prospects lifted by OPEC cut.
  • POSH remains our favoured operator; one of the healthier balance sheets among peers.
  • A potential privatisation candidate.
  • Upgrade to BUY; TP S$0.41.



Upgrade to BUY; TP lifted to S$0.41, based on 0.6x P/BV. 

  • 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. The improving oil prospects following OPEC’s cut should accelerate recovery. 
  • In addition, POSH is among the potential privatisation candidates with high ownership of 81.89% by majority shareholder, Kuok (Singapore) Ltd.


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- to 7-year maturities) give us confidence in the company’s ability to weather the crisis.


Expect FY17 to be a better year than FY16. 

  • We estimate a smaller loss of c.US$7m in FY17. We 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 upgraded POSH to BUY with a higher TP of S$0.41, based on a 0.6x P/BV peg (0.5x previously).


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/ 2016-12-05
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.410 Same 0.410




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