PACC Offshore Services Holdings - OCBC Investment 2016-08-03: US$17.6m net loss in 2Q16

PACC Offshore Services Holdings - OCBC Investment 2016-08-03: US$17.6m net loss in 2Q16 PACC OFFSHORE SVCS HLDG LTD POSH U6C.SI 

PACC Offshore Services Holdings: US$17.6m net loss in 2Q16

  • US$17.6m net loss in 2Q16.
  • To be unprofitable in 2H16.
  • Downgrade to SELL.

Results significantly below expectations

  • PACC Offshore Services Holdings (POSH) reported a 35% YoY fall in revenue to US$46.1m and a net loss of US$17.6m in 2Q16, significantly below ours and the street’s expectations. 
  • 1H16 saw a net loss of US$13.1m, while we were forecasting net profit of US$17.9m for FY16; the street was expecting net profit of US$19m. 
  • Considering that contribution from POSH Arcadia is likely to come in only next year, we are likely to see earnings revisions across the street.

Offshore accommodation disappoints

  • The reasons for this poor performance were mainly due to a 42% QoQ drop in offshore accommodation (the last bastion of earnings support, in our view) revenue in 2Q16 and US$6.5m allowance for doubtful debts. 
  • In the offshore accommodation segment, there was lower utilization, early termination of two contracts as a result of non-payment of charter, and POSH Xanadu also saw lower charter rates on contract extension. This resulted in gross profit of only US$2.7m for this division in 2Q16 compared to US$12.3m in 1Q16. 
  • As for the offshore support vessel division, it continued to operate with a gross loss, at –US$2.7m in the quarter. 
  • Transportation and installation’s gross profit remained weak at S$0.2m in the quarter vs. S$1.0m in 1Q16. 
  • Meanwhile, POSH’s share of JV results registered a loss of US$3.1m in 2Q16 due to lower contributions from POSH Terasea as a result for allowance for doubtful debt.

To be unprofitable in 2H16; downgrade to SELL

  • With the early contract terminations and poorer- than-expected operating performance so far, we revise our earnings estimates downwards, now forecasting US$18.5m net loss in FY16 with room for further downside. 
  • Indeed, management has also warned that the group does not expect to be profitable for the rest of the financial year amidst the challenging environment. 
  • Given the poor sentiment across the whole sector, we also lower our valuation from 0.5x book to 0.45x book, such that our fair value estimate drops from S$0.35 to S$0.29. 
  • Downgrade to SELL.

Low Pei Han CFA OCBC Securities | 2016-08-03
OCBC Securities SGX Stock Analyst Report SELL Downgrade HOLD 0.29 Down 0.35