PACC OFFSHORE SVCS HLDG LTD
U6C.SI
PACC Offshore Services Holdings - Jostling amid the weak environment
- 1Q16 in line; profits boosted by JV performance
- Still no news on a contract for the second SSAV which is scheduled for 2Q16 delivery
- No cash-flow issues; loan facilities are adequate
1Q16 results were in line.
- Revenues dipped 18% q-o-q owing to lower day rates at the OSV segment despite utilisation remaining firm around 67%, but the bottom line was boosted by a recovery in performance at the JV level – in particular from POSH Terasea JV – which lifted profits out of the red, resulting in a net profit of US$4.5m for the quarter.
- The other segments remained fairly steady in terms of gross profit contribution.
Uncertainty remains around the Accommodation segment.
- Despite the first SSAV securing a one-year renewal of its contract, a lower charter rate means we expect gross profits from the segment to decline by ~US$3-4m per quarter from 2Q16.
- The second SSAV’s fate remains largely unknown as no firm contract has been announced yet; going uncontracted will shave around US$13m off our gross profit forecast for FY17.
Tough times ahead, but POSH should weather the storm.
- Our forecast remains mostly unchanged.
- We expect net profits of US$11m and US$22m in FY16 and FY17 respectively, translating to an ROE of 1-2%, which is reflective of the weak offshore asset environment that we think will persist.
- We are however comfortable with POSH’s balance sheet position, its ability to maintain utilisation at relatively high levels, and recent initiatives to penetrate the Middle East market.
Valuation:
- Despite the risk to earnings associated with the second SSAV, POSH’s balance sheet remains relatively strong and it has also managed to refinance existing loans on attractive terms.
- We maintain our HOLD call, adjusting our P/BV peg upward a notch (from 0.4x to 0.5x) to reflect peer valuations and the recent upswing in oil prices. We now have a TP of S$0.35.
Key Risks to Our View:
- Failure to secure/extend charter contracts for the SSAVs. Our model assumes that the second SSAV secures a contract and starts work in 1Q17, while the first SSAV continues to be employed. If employment for these vessels is not secured on time, there could be further downside risk to earnings.
Suvro SARKAR
DBS Vickers
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Singapore Research Team
DBS Vickers
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http://www.dbsvickers.com/
2016-05-05
DBS Vickers
SGX Stock
Analyst Report
0.35
Up
0.28
