Pacific Radiance - DBS Research 2017-05-18: Liquidity Issues Cloud Outlook

PACIFIC RADIANCE LTD. T8V.SI

Pacific Radiance - Liquidity Issues Cloud Outlook

Unpledged cash balance down to US$15.2m.
1Q17 net loss at US$14.7m; revenues hit by one of the larger OSV vessels going off-hire.
Sixth consecutive quarter of negative OCF in 1Q17.
Funding persistent operating cash outflows will be a challenge in the near term.

Pacific Radiance’s (PACRA) unpledged cash balance plunged sharply – from US$42.2m as of 4Q16 to US$15.2m this quarter – largely due to negative operating cash flows (OCF) of US$13.1m during the quarter (marking the sixth consecutive quarter of negative OCF), as well as net debt repayments of US$18.6m.
As operating losses are set to continue in subsequent quarters, this does not leave much comfort as far as funding near-term working capital needs are concerned.

There is minimal visibility into PACRA’s undrawn banking facilities, though there is some cash available from the government-promoted schemes.
Management indicated near-term sources of liquidity include a S$15m bridging loan facility (partially utilised) from SPRING Singapore, though this is a fairly small amount, as well as a yet-to-be-approved S$70m facility under the Internationalisation Finance Scheme (IFS).
However, our understanding based on public disclosure is that the IFS loan is to be used only for fixed asset purchases, project financing and M&A financing. Thus, we are unsure how this can help support working capital outflows.

To recap, in 4Q16, PACRA managed to push out its term loan profile from seven to 12 years, thus reducing the quantum of its bank loans classified as current liabilities by around US$50m or so.
However, PACRA still has a S$100m note due in August 2018, which remains a major liquidity hurdle.

We tweak our P/BV multiple downwards to 0.2x FY17 net book value, to account for the increased liquidity risk, which lowers our TP to S$0.10.
Downgrade to FULLY VALUED.

A large equity injection or a generous debt restructuring programme approved by PACRA’s lenders could boost the share price.

1Q17 core losses in line. Core losses of US$14.7m for 1Q17 were in line with our earlier forecasts of US$15.5m. Gross losses of US$7m were also more or less in line with our forecasts, and represented a q-o-q improvement over 4Q16’s gross losses of US$14.5m.
However, the reason for the improvement – a significant uptick in subsea revenues – was unexpected, as we had earlier expected the OSV segment to be the one with a q-o-q improvement owing to some vessels beginning work on Middle East charters.

Despite PACRA’s OSVs seeing a q-o-q improvement in utilisation from 20+% in 4Q16 to mid-30% in 1Q17, and day rates improving q-o-q as well, revenue from the OSV segment declined by c.13% q-o-q as one of the larger, higher-earning vessels in the fleet went off charter during the quarter. This was offset by higher revenues at subsea segment, which increased from US$1.3m in 4Q16 to US$4.4m this quarter, as the DSVs saw higher utilisation of c.50% during 1Q17.
One of PACRA’s DSVs is on a 3-year campaign in Indonesia with a minimum 180-day work commitment, while the other managed to find some work offshore Malaysia.

A net decrease in bank debt of c.US$14.3m during 1Q17 was more than offset by a lower total equity base due to headline losses of US$14.7m, resulting in a slight uptick in net gearing during the quarter to 1.7x (from 1.6x as of 4Q16).

Movements in cash flow this quarter are a negative point – PACRA’s unpledged cash balance has been drawn down from US$42.2m as of 4Q16 to US$15.2m this quarter. This was due to
1. negative OCF of about US$13.1m and
2. gross debt repayments of about US$18.6m during the quarter.
This is the lowest cash balance since the onset of the oil crisis.

PACRA’s sole newbuild vessel in the orderbook remains due for delivery towards the end of 2017. The vessel has a charter contract in place, and the outstanding amount is fully financed. Hence, we are not too worried about this.

Suvro SARKAR DBS Vickers | Glenn Ng DBS Vickers | http://www.dbsvickers.com/ 2017-05-18

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