PACC Offshore Services Holdings - Favoured operator
- Prospects lifted by OPEC cut.
- POSH remains our favoured operator; one of the healthier balance sheets among peers.
- A potential privatisation candidate.
- Upgrade to BUY; TP S$0.41.
Upgrade to BUY; TP lifted to S$0.41, based on 0.6x P/BV.
- While day rates and utilisation remain depressed, POSH is a more stable long-term bet versus peers, with no immediate debt concerns and positive operating cash flows YTD.
- The company has also demonstrated its ability to secure work for its vessels amidst an anaemic market (e.g. long-term contracts in the Middle East for 13 vessels).
- POSH’s SSAVs remain the key driver of profitability (or lack thereof) going forward. The improving oil prospects following OPEC’s cut should accelerate recovery.
- In addition, POSH is among the potential privatisation candidates with high ownership of 81.89% by majority shareholder, Kuok (Singapore) Ltd.
No near-term liquidity issues.
- POSH had undrawn bank lines of c.US$365m as of 3Q16 – sufficient to cover its committed capex outstanding of US$151m.
- While net gearing may rise to ~0.7x from the current 0.6x after further asset impairments expected at year-end (assuming US$150m in impairments, similar to 4Q15’s amount), POSH’s debt profile remains relatively manageable versus peers.
- The absence of outstanding bonds, its positive operating cash flows sustained through the last three quarters and an already-extended term-loan profile (over twothirds of its loans have 5- to 7-year maturities) give us confidence in the company’s ability to weather the crisis.
Expect FY17 to be a better year than FY16.
- We estimate a smaller loss of c.US$7m in FY17. We expect the progressive commencement of long-term contracts secured on 13 vessels in the Middle East and maiden contributions from the POSH Arcadia SSAV to help narrow core losses y-o-y in FY17.
- We upgraded POSH to BUY with a higher TP of S$0.41, based on a 0.6x P/BV peg (0.5x previously).
Key Risks to Our View
- Failure to secure/extend charter contracts for the SSAVs. Our model assumes that the POSH Xanadu is employed through FY17, while the POSH Arcadia should start its 6-month contract mid-2017. If contracts for the SSAVs are not renewed, or if there are delays, there could be downside risk to earnings.