Pacific Radiance - DBS Research 2016-02-26: Outlook remains bleak for now

Pacific Radiance - DBS Research 2016-02-26: Outlook remains bleak for now PACIFIC RADIANCE LTD T8V.SI 

Pacific Radiance - Outlook remains bleak for now 

  • Net loss of US$2.6m reported for 4Q15 
  • OSV division reported gross losses 
  • Subsea vessel segment still in the red as well 
  • Management expects 2016 to remain challenging 

OSV segment officially in the doldrums. 

  • PACRA’s OSV segment has seen fleet utilisation drop from 64% in 3Q15 to mid-30% in 4Q15; day rates have taken a hit as well. 
  • The segment is in a gross loss position for the first time in its listed history, and we do not see any signs of a significant improvement in 2016, as oil prices remain low and demand for OSVs remain muted. 
  • Management expects FY16 to remain a difficult year. 

Subsea vessel utilisation could rebound gradually. 

  • At a utilisation rate of ~35% in 4Q15, mostly from work on shortterm jobs, the subsea vessel segment recorded gross losses. However, maintenance work will always be required, as oil companies are unlikely to risk safety issues resulting from maintenance lapses. 
  • We expect the segment to achieve modest profitability by 2017, with utilisation improving to ~50%. 

Tweaking our assumptions to account for deterioration in industry fundamentals. 

  • We have lowered our utilisation and dayrate assumptions for the OSV segment going forward, imputing a 40-50% utilisation rate, day rates of around US$1.00/bhp for AHTS vessels, and US$15,000/day for small PSVs. 
  • Higher interest expense from increased borrowings is also expected to weigh on profitability. Hence, we are now expecting overall net losses of US$25m and US$16m in FY16 and FY17 respectively; we factor in some improvement in the OSV market from 2H16 onwards. 


  • We lower our P/BV valuation peg to 0.35x (compared to 0.4x for OSV peer POSH) to reflect the weaker operating performance and higher net gearing of close to 1x. 
  • Downgrade to FULLY VALUED with lower TP of S$0.25. 
  • FY15 final dividend of 1Sct will likely only be a temporary support. 

Key Risks to Our View: 

  • A sharp spike in the oil price – albeit unlikely in our view – could result in uplift in utilisation and day rates for vessels, boosting earnings and the share price. 

Suvro SARKAR DBS Vickers | http://www.dbsvickers.com/ 2016-02-26
CIMB Securities SGX Stock Analyst Report HOLD Downgrade FULLY VALUED 0.25 Down 0.32