PACC Offshore Services Holdings - Maybank Kim Eng 2016-02-22: A Definite Survivor

PACC OFFSHORE SVCS HLDG LTD POSH U6C.SI

PACC Offshore Services Holdings (POSH SP) - A Definite Survivor

4Q15/FY15’s net losses of USD150m/USD131m were due to USD127m of goodwill and USD21m of asset impairments.
Excluding impairments, 4Q15 net loss was USD1.2m (-88% YoY, -110% QoQ), while FY15 net profit was USD17.5m (-67% YoY), still a miss.

But FY15 operating cash flow of USD70m was strong. Its -USD188m of FCF would be a +USD20m if we add the USD206m of loan repayment from its JV.
SGD 0.5 cts of final DPS was a pleasant surprise vs. our expectation for zero.
We cut FY16-17E EPS by 28-45% on expectations for lower rates and utilisation.
Maintain BUY with TP lowered from SGD0.47 to SGD0.42, still at 0.5x FY16E P/B which was based on GGM (ROE 6%, COE of 12%).

Utilisations for OSV/OA/T&I segments in FY15 dropped to 69%/60%/58% (vs 85%/77%/64% in FY14), but gross margin fell by only 3.8ppts to 20.7%, thanks to a stronger high margin OA segment and cost cuts.
But SSAV POSH Xanado (OA segment) is up for renewal in Mar 2016 and rates are expected to drop. Second SSAV POSH Arcadia will be delivered in midFY16 and is still uncontracted. POSH said that it is bidding for work in West Africa, Australia, Mexico and the North Sea for Arcadia.
We now assume 4 mths of contribution from Arcadia in FY16 vs 9 mths previously.

POSH has the least balance sheet risk among oil services stocks we cover, because:
1. FY15 net gearing is only 0.5x;
2. It secured USD1b of loan facilities in Jan 2016 at interest rate of < 2%, where USD462m of the loans have tenures of 5-7 years;
3. it has only USD161m of outstanding capex commitment with USD117m to be paid in FY16; and
4. it targets to save another USD10m from cost cuttings in FY16.
We expect FCF to improve significantly starting from FY17.

POSH’s strong financial strength vindicates our view that it will survive the downturn and emerge with stronger market share.
It continues to seek jobs and recently won a contract to tow Shell’s Prelude FLNG, and established a Saudi Arabia JV to target the Middle East market.
We also believe that a privatisation by its parent cannot be ruled out, while downside risk is limited with the stock at historical low of 0.3x P/BV.

Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-02-22

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.42 Down 0.47