PACC Offshore Services Holdings (POSH) - Maybank Kim Eng 2016-04-01:Petrobras renews Xanadu

PACC Offshore Services Holdings (POSH) - Maybank Kim Eng 2016-04-01:Petrobras renews Xanadu PACC OFFSHORE SVCS HLDG LTD POSH U6C.SI 

PACC Offshore Services Holdings (POSH SP) FLASH: Petrobras renews Xanadu 

Xanadu’s renewal eases near-term concerns 

  • POSH said that it has successfully renewed its semisub accommodation vessel (SSAV), POSH Xanadu, for another year with Petrobras. It did not disclose the renewed dayrate, but we believe that it would likely be about 30% below the previous rate of c.USD175k/day. 
  • We have already accounted for a reduced rate of USD125k/day in our forecast. The renewal has removed a major near-term concern, as POSH Xanadu alone accounts for c.15% of our FY16E revenue estimate. 
  • Maintain BUY and TP of SGD0.42, equal to 0.5x FY16E P/BV based on GGM (ROE 6%, COE 12%). 

Demonstrates relatively resilient demand of SSAV 

  • Given Petrobras’ bigger than expected 43% job cut and recent termination of a drilling rig contract with Sevan Drilling, this renewal demonstrates the relative resilient demand of accommodation vessels. 
  • Such vessels are used during the hook-up and commissioning stage so that the oilfield can proceed towards the production phase. This a necessary stage so that oil can be extracted, and when huge E&P capex spent can be monetised. 
  • POSH Xanadu was also able to achieve 100% uptime when floatels in the area disconnected during adverse weather. 

Next up is second SSAV Aracadia 

  • The next major contract that POSH has to concentrate on securing is its second SSAV, POSH Arcadia, which is expected to be delivered in midFY16. We have accounted for four months of contribution in FY16. 
  • Other than Brazil, POSH is marketing the vessel in West Africa, Australia, Mexico, and the North Sea. 

Least balance sheet risk among peer group 

  • We like POSH despite our negative sector view because it has the least balance sheet risk among oil services stocks we cover. 
  • FY15 net gearing is only 0.5x, and it has obtained USD1b of loan facilities at an interest rate of < 2%, where USD462m of the loans have tenures of 5-7 years. The company has only USD161m of outstanding capex commitments, with USD117m to be paid in FY16, and targets saving another USD10m from cost cutting. We expect FCF to improve significantly starting from FY17. 
  • Stock trades at only 0.4x FY16 P/BV vs. our target of 0.5x. 

Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-01
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.42 Same 0.42