Pacific Radiance - DBS Research 2016-08-16: Fundamentals still weakening

Pacific Radiance  - DBS Vickers 2016-08-16: Fundamentals still weakening PACIFIC RADIANCE LTD. T8V.SI

Pacific Radiance - Fundamentals still weakening

  • 2Q16 core profits below expectations.
  • US$46m in impairments and provisions boost headline net losses.
  • Utilisation higher q-o-q but day rates have fallen.
  • Net gearing now at 1.4x.



Maintain FULLY VALUED as day rates continue falling and leverage remains high. 

  • As oil prices languish in the US$40- 50/bbl range while the OSV oversupply situation has worsened over the last 1-2 years (with the OSV-to-rig ratio having climbed steadily to ~6.5x currently), both PACRA’s supply vessel and subsea vessel segments are suffering from low fleet utilisation day rates, resulting in overall gross losses. 
  • Unless the oil price rebounds substantially, the industry looks set to remain in the doldrums in the near term. 
  • Additionally, net gearing levels are likely to rise further from the 1.4x as of 2Q16 as the company will need more buffer against its negative cash flow trend and low cash balance of just ~US$30m. 
  • Maintain FULLY VALUED with revised TP of S$0.11.


2Q16 results indicate that fundamentals are still trending downward. 

  • PACRA moved deeper into the red in 2Q16 with core net losses of US$11.8m, down from a US$6.8m loss in 1Q16, mainly on weaker average day rates on OSVs during the quarter despite an uptick in utilisation to 57%. 
  • Subsea vessel utilisation is also down q-o-q at ~15% currently but should see a near-term boost as one DSV had begun a 3-year contract with Pertamina in June, though there is no guarantee of profitability.


Lowering our earnings forecasts for FY16/17. 

  • To account for gross losses that have intensified by more than we had expected, we increase our forecasts of net losses in FY16/17 to US$40m/US$34m respectively, from US$27m/US$19m earlier.

Valuation

  • Our TP is revised downward to S$0.11 based on a P/BV peg of 0.15x – in line with the weaker peers in the region and reflecting the company’s weak operating performance.
  • Maintain FULLY VALUED.

Key Risks to Our View

  • A sharp spike in oil price – albeit unlikely in our view – could result in uplift in utilisation and day rates for vessels, boosting earnings and the share price.




Suvro SARKAR DBS Vickers | http://www.dbsvickers.com/ 2016-08-16
DBS Vickers SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 0.11 Down 0.260


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