PACC OFFSHORE SVCS HLDG LTD
U6C.SI
PACC Offshore Services Holdings - Long-term contracts add visibility
- Net losses of US$17.5m in 2Q16 higher than expected as revenues decline sharply.
- Utilisation and rates are squeezed across segments.
- Balance sheet remains healthy though; undrawn credit facilities provide robust liquidity buffer.
POSH should weather the storm; maintain HOLD.
- Low and volatile oil prices have triggered more project deferrals and charter terminations from oil majors, resulting in 3 out of 4 of POSH’s operating segments suffering steep declines in revenues in 2Q16, resulting in US$17.5m in net losses for the quarter.
- Nonetheless, we think earnings will recover in FY17 on the back of commencement of long-term contracts secured earlier in 2016 for 13 vessels worth US$252.5m from Middle East clients, as well as start of contract of the second semi-sub accommodation vessel. Thus, POSH, supported by a strong balance sheet, remains well positioned to tide through the crisis.
- We maintain our HOLD call with a revised TP of S$0.33.
No near-term credit worries.
- As we enter the distress stage of the oil & gas industry cycle, nothing is more crucial than a strong balance sheet and access to financing; POSH has both.
- Operating cash flows also remain positive in 1H-2016.
- Net gearing of 0.57x is relatively low versus peers and it has ~US$405m in undrawn bank lines to call upon, which will help fund committed capex of US$185m and provide a cash buffer.
Lowering our forecasts, but still expect a profit in FY17.
- Due to the deterioration in utilisation and day rates across most of POSH’s operating segments, we now expect losses of US$21m in FY16 (vs. earlier forecasts of profits) but expect a rebound to US$6m in profits for FY17 due to the start-up of long-term contracts secured on OSVs in the Middle East and maiden contributions from the POSH Arcadia SSAV beginning in 1Q17.
Valuation:
- We maintain our HOLD call based on a 0.5x P/BV peg, with a slightly trimmed TP of S$0.33 to reflect a lower book value on losses expected this year.
Key Risks to Our View:
- Failure to secure/extend charter contracts for the SSAVs.
- Our model assumes that the POSH Xanadu continues to be employed through FY17; the POSH Arcadia has already secured a contract covering it for most of FY17. If contracts for the SSAVs are not renewed on time, there could be downside risk to earnings in FY17.
Suvro SARKAR
DBS Vickers
|
Singapore Research Team
DBS Vickers
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http://www.dbsvickers.com/
2016-08-04
DBS Vickers
SGX Stock
Analyst Report
0.33
Down
0.35
