PACC Offshore Services Holdings - Maybank Kim Eng 2015-11-04: A game of survival

PACC Offshore Services Holdings - Maybank Kim Eng 2015-11-04: A game of survival PACC OFFSHORE SVCS HLDG LTD U6C.SI 

PACC Offshore Services Holdings - A game of survival 

  • 3Q15 beat our expectations on better margins but met consensus. This shows cost-optimisation efforts are paying off. Raise FY15E by 32%, trim FY16E/17E by 5%/1%. 
  • Likely to survive downturn given strong balance sheet. Preferred OSV play. 
  • Cut TP from SGD0.65 to SGD0.50, now at 0.5x P/BV to reflect longer downturn. Maintain BUY

What’s New 

  • 3Q15 net profit of SGD12.6m (-16% YoY, +106% QoQ) beat our expectations but met consensus. 
  • 9M15 net profit of SGD18.7m (-71% YoY) formed 85%/58% of our/consensus forecasts. 
  • The beat came from better-than-expected margins which show that cost-optimisation efforts are paying off. 
  • OSV segment saw gross margin improve sequentially from -2.3% to 14.0%. 
  • Strong OA contributions from new vessels also helped. Excluding vessel sale gains, 3Q15 core net profit actually rose 293% YoY. 

What’s Our View 

  • We raise FY15E EPS by 32% on the better-than-expected 3Q15 but trim FY16E/17E by 5%/1% on housekeeping adjustments. 
  • Our forecast of strong EPS growth in FY16E still hinges on POSH securing a charter for its second SSAV - POSH Arcadia, by 2Q16 and stopping losses at its Mexican JV vessels which have been transferred to the OSV segment. The sector continues to face rates and utilisation pressure. With no visible oil price rebound, a sustained OSV recovery may come after 1H16. 
  • To reflect a longer downturn, we lower our P/BV valuation multiple from 0.7x to 0.5x, based on GGM (ROE 6%; CoE 12%). This brings our TP down from SGD0.65 to SGD0.50. 
  • This is a game of survival and POSH’s strong financial position (0.46x net gearing; 9.4x/8.0x 3Q15/FY15E EBITDA/interest expense) and Kuok Group parentage minimise risk of failure. 
  • POSH is our preferred OSV player. Maintain BUY.

Yeak Chee Keong CFA Maybank Kim Eng | 2015-11-04
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.50 Down 0.65