Pacific Radiance - CIMB Research 2016-11-09: 3QFY16 Dim outlook; awaiting uptick in utilisation

PACIFIC RADIANCE LTD. T8V.SI

Pacific Radiance - 3QFY16: Dim outlook; awaiting uptick in utilisation

3Q16 core net loss of US$16.2m was below our and Bloomberg consensus core net loss expectations of US$2.4m and US$9m, respectively.
9MFY16 featured:
1. still low utilisation and daily charter rates;
2. third consecutive quarter of gross loss (US$8.2m), and
3. negative operating cash flow of US$11.6m.

We cut FY16F-18F EPS significantly for cuts in vessel utilisation and EBITDA margins.
Maintain Reduce call with lower TP of S$0.13, now based on 0.2x FY17F P/BV (previously 0.3x FY17F P/BV) as we discount for weak operational performance.

9MFY16 core net loss of US$36.9m was below our full-year loss expectations of US$9.6m and was 93% of consensus core net loss of US$35.9m.
Estimated 9MFY16 EBITDA was negative US$8.7m (versus positive EBITDA of US$39.6m in 9MFY15).

OSV revenues fell qoq by 28% on lower utilisation of c.40% vs. mid 50% in 2Q16. We believe the subsea division could have performed better qoq as one of the diving support vessels (DSV) started work in Jun-16.
Management guided that 9MFY16 OSV and subsea utilisation was c.50% and c.20%, respectively; still low in our view.

We suspect PACRA’s utilisation will be muted for at least the next six months as offshore support vessel providers typically experience lag in spillover effects from any movement in crude oil prices. The existing vessel supply glut notwithstanding.

We lower FY16F-18F vessel utilisation to 43.2-57.5% (from 50.2-59.9%) and reduce FY16/17/18F EBITDA margins to -19.8%/4.7%/23.0% (from 20.1%/23%/28%), largely as we foresee that subsea division margins will remain negative until FY18F.
Our key changes reduce our FY16/17/18F forecasts to net losses of US$46.2m/US$26.3m/US$8.1m (from -US$9.6m/-US$2.97m/net profit of US$4.6m).

We foresee FY16-17F cash flows to be tight, as long as asset utilisation remains stifled.
With 3QFY16 outstanding cash balance of US$29.5m, PACRA is likely to rely on shortterm facilities for financing needs in the near term, in our view.
We forecast FY17F operational cash flow to remain in negative territory. Management has no foreseeable vessel capex for FY16-FY18F. 9MFY16 operational cash burn was US$38m.

We would not be surprised if PACRA engages in a financing exercise in end-2017/early 2018 in expectation of its S$100m MTN bond due in Aug 2018, given that operational performance is likely to stay muted in the near term.

We resume coverage with a Reduce call and lower TP, now based on 0.2x FY17F P/BV (previously 0.3x FY17F P/BV).
The stock is undoubtedly trading at trough valuations (less than 1 s.d. below historical mean of 0.3x) but we remain conservative for now, given PACRA’s weak 9MFY16 operational performance.
We would turn more positive upon seeing an uptick in vessel utilisation and positive operating cash flow.
An upside risk is higher vessel utilisation upon a sector recovery

Cezzane SEE CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2016-11-09

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