PACIFIC RADIANCE LTD
PACRA
T8V.SI
Pacific Radiance - 1Q16: Second gross loss in a row
- 1Q16 US$7m core net loss below our and consensus expectations of US$4m and US$2m core net profit, respectively.
- Utilisation for OSV at mid-40% (1Q15: 50%) and subsea high-20% (1Q15: 22%).
- Net gearing inched up 1.1x (4Q15: 0.9x) after delivery of two AHTSs. Two more vessel deliveries in 2016, none for FY17-18.
- Cut EPS by 164-114% for FY16-17F, reflecting lower utilisation and charter rates.
- Downgrade to Reduce, now based on 0.3x FY16F P/BV (previously 0.5x). De-rating catalysts include further oil price decline.
Lower revenue led to second consecutive quarterly gross loss
- Core loss of US$7m was below our and consensus expectations of core net profits. The miss was due to lower revenue from both OSV and subsea at US$17m (-4% qoq, -41% yoy) and US$1m (-69% qoq, -60% yoy), respectively.
- The negative operating leverage effect led to a gross loss for a second consecutive quarter of US$1m.
Weak utilisation and charter rates
- The lower OSV and subsea revenues were driven by seasonality, weak utilisation and low charter rates. OSV utilisation fell to mid-40% (1Q15: 50%) as most PSVs were not working during the quarter while subsea utilisation was a high-20%, similar to 22% in 1Q15. Charter rates have fallen 30-40% across all asset classes since 1H14, with PSV and large AHTS mostly affected. For instance, large AHTS rates were down by 44-50%.
Net gearing inched to 1.1x; two more vessel deliveries in FY16
- Net gearing climbed from 0.9x in 4Q15 to 1.1x as PACRA took delivery of two AHTSs in honour of the contracts.
- Management is expecting to incur another US$50m for two more deliveries by end-2016.
- We expect net gearing to stay around 1.2x given PACRA has no new vessel deliveries in FY17-18.
Rates could have bottomed as oil price stabilises above US$40/bbl
- YTD, oil price has increased 29%. Management noted that the 1Q16 charter rate was rather flattish vs. 4Q15, suggesting that rates could have bottomed.
- If oil prices stay at US$40/bbl and above, we might see greater activity and rates stabilising at higher levels.
Cut FY16-17 EPS by 164-114%
- Given the pressure on utilisation and charter rates, we believe FY16 will be a whitewash year while FY17 remains uncertain pending oil price recovery.
- PACRA also faces vessel impairment risks as it did not provide in 4Q15 as the value was deemed ‘above water’.
- We slash FY16-17F EPS as we adjust utilisation for OSV from 70% to 50%. Utilisation for DSV stays at 40% given Crest Odyssey 1’s sale to PT Jawa in 4Q15.
- Our EPS cut also reflects lower charter rates of 35% in FY16, 30% in FY17 and 25% in FY18.
Resume coverage; downgrade to Reduce with TP of S$0.23
- We downgrade the stock from Add to Reduce with a target price of S$0.23, now based on 0.3x FY16 P/BV (previously 0.5x). De-rating catalysts include further oil price decline.
Jack YING
CIMB Securities
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LIM Siew Khee
CIMB Securities
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http://research.itradecimb.com/
2016-05-13
CIMB Securities
SGX Stock
Analyst Report
0.23
Down
0.41
