PACC Offshore Services Holdings - OCBC Investment 2016-09-01: Upgrade after price correction

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PACC OFFSHORE SVCS HLDG LTD. U6C.SI

PACC Offshore Services Holdings - Upgrade after price correction

• POSH Xanadu bidding for work?
• Stock has corrected.
• Upgrade to HOLD.

POSH Xanadu bidding for job in Brazil? 

• According to Upstream , PACC Offshore Services Holdings (POSH) is one of three leading the race to supply Brazil’s Petrobras with an accommodation and maintenance unit to run operations in the Santos Basin. The two other contenders are Axis Offshore and Dutch player OOS International. Petrobras is offering a one-year charter, renewable for another year, for a flotel with capacity to accommodate at least 460 people and ready to enter operations in Jun 2017.
• According to Upstream, it is said that POSH offered the semisub POSH Xanadu, currently chartered to Petrobras until Mar 2017. Recall that POSH Xanadu is currently working in the Campos Basin in Brazil after a contract extension with Petrobras earlier.
• Demand for floatels in Brazil Floatels are mainly used to support repair and maintenance work offshore, and being a major user of FPSOs (Petrobras already has eight FPSOs in the Santos basin pre-sale cluster), Petrobras would probably need more floatels to come. Currently, Petrobras has a fleet of seven floatels operating in Brazil with six different contractors.

Hoping for a win 

• In our view, it is quite crucial (from an earnings standpoint) that POSH Xanadu secures work after the end of its contract in 1Q17, given how the rest of the group’s offshore accommodation segment is not doing particularly well. 
• Recall that there was early termination of two contracts as a result of non-payment of charter in the offshore accommodation segment in 2Q16. The outlook for the offshore support vessel division also remains dim.

Stock has corrected; upgrade to HOLD 

• Since our downgrade to Sell on 3 Aug, the stock has lost about 9% of its value compared to the STI’s 1.3% fall over the same period. 
• Given that the stock is now trading at more palatable levels, we upgrade our rating to HOLD with an unchanged fair value estimate of S$0.29, but caution that it remains early to turn positive on the stock, given that the group does not expect to be profitable for the rest of the financial year amidst the challenging environment.

Low Pei Han CFA OCBC Investment | http://www.ocbcresearch.com/ 2016-09-01

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