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.

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.

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.

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.

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 | http://www.rhbinvest.com.sg/ 2015-11-13

RHB Research SGX Stock Analyst Report BUY MAINTAIN BUY 0.65 Down 0.66