Pacific Radiance - RHB Invest 2015-11-13: Book Value Supported By Profitable Vessel Sales

Pacific Radiance - RHB Invest 2015-11-13: Book Value Supported By Profitable Vessel Sales PACIFIC RADIANCE LTD PACRA T8V.SI 

Pacific Radiance (PACRA SP) - Book Value Supported By Profitable Vessel Sales 

  • Radiance had a weak 3Q15 as OSV utilisation fell QoQ with some vessels in between jobs. 
  • Maintain BUY with a revised SGD0.65 TP (71% upside) based on 0.8x P/BV. 
  • What caught our eye this quarter were two vessel sales at c.15% above book value. 
  • Our calculations suggest these were newbuild vessels that joined the fleet recently. 
  • Radiance’s book value is certainly not impaired, but the stock trades at a 55% discount to NAV. 

 Lower OSV utilisation, but DSV jobs coming back. 

  • Pacific Radiance’s (Radiance) offshore support vessel (OSV) utilisation rate was only 65% in 3Q15, vs 77% in 2Q15 as certain vessels were in between jobs and a couple of vessels joined the fleet in 2Q15. The better news was that the diving support vessels (DSVs) enjoyed a 32% utilisation rate, up from 3% in 2Q15. Oil majors have managed to postpone maintenance jobs for 9-10 months, but this is now raising safety, compliance and production concerns. 

 OSV charter rates have bottomed out. 

  • An encouraging takeaway was that OSV rates have troughed, with many operators in the red or at breakeven preferring to lay up vessels rather than charter out at a loss. Saudi Aramco recently took > 40 vessels on 5-year charters, clearly snapping up assets for long-term charters at depressed rates. 
  • However, as rates could stay depressed for longer, we slash our earnings estimates to USD8.4m/USD22.7m from USD14.8m/USD32.5m for FY15/FY16 respectively. 

 Solid 15% gain on vessel sales. 

  • Working the numbers backwards, Radiance sold a 6,000 brake horsepower (bhp) anchor-handler and a work barge at a 15% gain. The implied book value also indicates that those vessels were less than a year old. 
  • Separately, management confirmed that the vessels were without jobs, but that the buyer had a contract that called for assets with those specifications. 
  • To us, this means that Radiance’s vessels can be sold at a profit even without contracts on hand, which lends strong support to its book value. 

 BUY for realisable book value. 

  • As an asset-heavy play, Radiance is compellingly attractive at a 55% discount to book value. We believe even a small rebound in oil prices next year would be sufficient to reset market sentiment to a neutral stance, when the stock could trade near book value. 
  • We trim our TP to SGD0.65 (from SGD0.66), based on 0.8x P/BV.

Lee Yue Jer CFA RHB Research | 2015-11-13
RHB Research SGX Stock Analyst Report BUY MAINTAIN BUY 0.65 Down 0.66