Pacific Radiance - Maybank Kim Eng 2015-11-13: Visibility still poor, better to avoid

Pacific Radiance - Maybank Kim Eng 2015-11-13: Visibility still poor, better to avoid PACIFIC RADIANCE LTD PACRA T8V.SI 

Pacific Radiance (PACRA SP) - Visibility still poor, better to avoid 

  • 3Q15 net profit of USD1.6m was bolstered by USD6.6m of vessel sales gain, which still missed our Street-low forecast. 
  • Cut FY15-17 EPS by 5-28% as we foresee a longer than expected downturn. 
  • Maintain SELL. TP cut from SGD0.34 to SGD0.33, still at 0.4x P/BV. 

What’s New 

  • 3Q15 net profit of USD1.6m missed (-88.9% YoY, -58.3% QoQ). 
  • Net profit was boosted by USD6.6m of vessel sales gain (1 x 6,000bhp AHTS & 1 x accommodation barge). 
  • 9M15 net profit of USD6.5m formed only 50% of our Street-low FY15E and 42% of consensus. 
  • Utilisation rates for core OSV segment dipped to 64% in 3Q15 (2Q15: 77%, 1Q15: 50%), DSV rose to 32% (2Q15: 3%, 1Q15: 22%), while that for accommodation and work barges slid to 45% (2Q15: 54%, 1Q15: 71%). 
  • 3Q15 gross margin for its OSV segment was also lower at 32% (2Q15: 40%). 

What’s Our View 

  • Management sees a tougher environment, but thinks that further rate cuts are limited as most OSV owners are already operating at cash breakeven. 
  • It also sees a higher possibility of securing a DSV contract by Dec-15. 
  • We see a more sustained OSV downturn that would continue to pressure rates and utilisation into 2016, especially if desperate players start to undercut in order to survive. Overall visibility is still poor and insufficient to pique investor interest. 
  • With a net gearing of 1.0x and EBITDA/int. expense of 4.1x as at 9M15, its financial strength is not among the strongest. Its outstanding capex is about USD150m, of which USD100-110m will be financed through bank borrowings. 
  • We cut FY15/16/17 EPS further by 28/5/18%. 
  • Our TP, which is based on 0.4x FY16 P/BV, falls from SGD0.34 to SGD0.33. 
  • Maintain SELL. 
  • Ezion is still our preferred pick for sector exposure.

Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-13
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 0.33 Down 0.34