Pacific Radiance (PACRA) - DBS Research 2016-05-13: Day rates weaken further

Pacific Radiance - DBS Research 2016-05-13: Day rates weaken further PACIFIC RADIANCE LTD T8V.SI 

Pacific Radiance (PACRA) - Day rates weaken further

  • 1Q16 net loss in line with expectations
  • OSV segment utilisation recovered slightly to over 40% in 1Q16, but day rates weakened
  • Subsea segment could pick up slightly in 2Q/3Q16
  • Still forecasting losses in FY16/17

1Q16 net loss of US$6.8m in line. 

  • The decline in revenues for the quarter was compounded by an increase in interest costs from US$2.9m in 4Q15 to US$3.3m in 1Q16 on higher debt levels, and a drop in associate/JV profits. This was offset by higher-than-expected gross profits, higher interest income, and lower opex on cost savings initiatives. 
  • The net effect: PACRA moved deeper into the red – from a US$2.6m loss in 4Q15 to the US$6.8m loss recorded this quarter.

OSV day rates weakened further. 

  • Revenues declined by 15.4% q-o-q, from US$21.7m to US$18.4m, largely due to a drop in revenues from the subsea segment from US$3.2m in 4Q15 to US$1.0m this quarter; 1Q is usually a low period for subsea work given the prevailing monsoon period from November to March in SE Asia. 
  • Revenues from the OSV segment declined a modest 4-5%, although utilisation ticked up slightly from > 30% in 4Q15 to > 40% in 1Q16, implying lower day rates.

Subsea segment could pick up slightly in 2Q/3Q. 

  • One of PACRA’s Dive Support Vessels (DSVs)s will be starting a 3-year contract with Pertamina in mid-2016, which will help boost subsea utilisation, although this still depends largely on how much Pertamina uses the vessel, as the contract only stipulates a minimum of 100 days work per year. 
  • The other subsea vessel has also managed to land some short-term work in June, which should help boost subsea utilisation further during that period.

Associate/JV performance deteriorated. 

  • Share of associate/JV profits declined from US$2.4m in 4Q15 to US$0.9m in 1Q16, mainly from lower performance from joint ventures. 
  • However since PACRA’s largest JV, 35%-owned Logindo, only saw a minor increase in its quarterly losses – from US$0.2m to US$0.8m – we think the lion’s share of the decline in JV profits should have come from the other JVs, including Alam Radiance and Aztec Offshore.

Gearing to edge up further on additional debt for outstanding capex. 

  • Net gearing increased during the quarter to 1.1x, up from 0.9x in 4Q15, on drawdown of loans for taking delivery of 2 vessels and a step-up in investment in JV entity Aztec Offshore. 
  • PACRA will likely see its gearing rise to 1.3x this year on capex for an additional 2 vessel deliveries and for additional cash buffer.

Earnings lowered slightly; Maintain FULLY VALUED. 

  • We trim FY16 and FY17 earnings by about US$2m and US$3m respectively, with losses of US$27m and US$19m expected in those two years respectively. 
  • Our TP of S$0.26 is based on a P/BV peg of 0.35x, as earnings headwinds persist and debt levels continue to rise.

Suvro SARKAR DBS Vickers | 2016-05-13
CIMB Securities SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 0.26 Up 0.25