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PACC Offshore Services Holdings Ltd (POSH) - IPO Comments

Shared By Unknown on Thursday, April 10, 2014 | 10.4.14

Key Points
Neutral view – More suited for aggressive investors. The indicative pricing range implies 16-17.6x FY14E PER & 8.7-9.5x FY15E PER, close to sector peers’ estimated 9-10x FY15E PER. The strong projected earnings growth in FY15 assumes timely delivery and securing of charter-out contracts for two semisubmersible accommodation vessels (51.7% PATMI CAGR forecasted from FY13-FY15F, 10% & 70.7% revenue growth in FY14 & FY15 respectively, driven by full year contribution expected from the 2 new SSAVs). 

POSH will enter the semisubmersible accommodation market with 2 newbuilds (POSH Xanadu & POSH Arcadia), the first will be delivered in 2H14 (currently undergoing negotiations). The order of the 2 SSAVs marks the group’s expansion into such high berth vessels. In terms of industry dynamics, Infield foresees a level of undersupply of SSAVs in 2014 due to a peak in demand from robust activity in Norway, demand is expected to soften slightly post 2014 before rising in 2016.

Description: 
Largest Asian based provider of offshore support vessels and one of the top 5 globally (according to industry consultant Infield’s data based on number of vessels operated), with a diversified fleet servicing offshore oil and gas exploration and production activities. The company’s offshore support vessels perform anchor handling services, ocean towage and installation, ocean transportation, heavy-lift and offshore accommodation services, as well as harbour towage and emergency response services. Revenue is earned from the time charters of its vessels, as well as lump sum project contracts for which its vessels are deployed. Customers include major oil companies and large international offshore contractors.
 IPO Term Sheet  IPO Preliminary Prospectus
 Click here  Click here

FY13 revenue breakdown estimates:
Offshore Services Vessels 50.7%, Offshore accommodation 12.4%, Harbour services and emergency response 9.4%, transportation and installation 27.4%.

Billionaire Robert Kuok
Strengths include an experienced management team, and being a member of the Kuok Group, a conglomerate in Asia with diversified interests in commodities, hospitality, logistics, real estate and shipping, which provides POSH with access to affiliated shipyards of the group to better manage turnaround times for newbuilds and maintenance costs, group’s connects and network and lower financing costs. Its young deepwater and midwater AHTS/PSV fleet amongst large owners, with average age of less than 3 years (younger than sector average) is also a competitive advantage as modern vessels are viewed to provide better reliability, efficiency and adherence to environmental and safety standards.

Company Snapshot
Fleet size to increase to 125 by 2015
As of 31 Dec 2013, the company operated a combined fleet of 112 vessels, which is expected to rise to 125 units by end 1Q15, based on scheduled deliveries (comprising two deck cargo barges, two Azimuth Stern Drive (“ASD”) harbour tugs, three DP2 accommodation vessels, three Dynamic Positioning (”DP”) 2 or DP2 AHTS, two DP3 Semi-Submersible Accommodation Vessels (“SSAVs”), and three vessels which its joint ventures have on order).

Growth catalyst in FY15, with delivery of two 750-person DP3 SSAVs (semisubmersible accommodation vessels), estimated to potentially double its earnings base in FY15F assuming deliveries are on track and charter-out contracts are secured on time. As per prospectus, the company is in the final stages of procuring a charter contract for the commercial deployment of one of the vessels when it is delivered. The execution of the charter contract is pending the completion of due approval process of the counterparty. The vessels are expected to capture demand for high capacity and high specification accommodation vessels catering to the deepwater segment.

When all of the accommodation vessels that are under construction or undergoing conversion are delivered by late 2014 and 1Q2015, its accommodation capacity is expected to increase from 879 persons to 3,291 persons (this includes one 191-person accommodation vessel that is committed for sale). According to Infield, as at the close of 2013, there were only three operational SSAVs with berth capacity of more than 600-person and another three on order or under construction (including POSH’s two 750-person DP3 SSAVs). Upon the delivery of the two DP3 SSAVs, POSH is expected to operate the youngest high-berth accommodation vessel fleet globally.

The debt to equity ratios of the group were 1.05: 1, 0.99: 1 and 0.93: 1 for FY2011, 2012 and 2013 respectively. As of 31 Dec 2013, total borrowings were USD807.4mln, which will be reduced to close to USD500mln post IPO. The company is expected to re-leverage thereafter to fund further expansion, and has guided it will continue to have a significant amount of borrowings given the industry’s capital intensive nature.

Negative working capital for FY11 and FY13 respectively due to the manner it funded its vessel related capex (relied on equity capital, cashflows from operations and bank borrowings). Bank borrowings were drawn under credit facilities of which 68.4% is uncommitted, and remaining 31.6% is committed for a fixed term. The amounts drawn under the uncommitted portion of its facilities are subject to variation or cancellation by lenders any time, which will become due and payable (potential short term debt repayment concerns in a worst case scenario).

Valuations
The indicative pricing range implies estimated 16-17.6x FY14E PER & 8.7-9.6x FY15E PER (due to assumptions for higher earnings growth from the 2 SSAVs to be delivered), which is close to sector peers trading at about 9-10x FY15E PER. There is no direct comparable within the sector, some Singapore listed offshore service providers own and operate OSVs such as Ezra but have significant other businesses such as deepwater subsea services. Regional peers/listed OSV operators include Bumi Armada, Alam Maritim and Wintermar Offshore.

Valuation Comparison

Key Risks Include:
Oil price volatility, regulatory risks, equity raising risks, irrational competition, delivery delays, potential oversupply risks in a fragmented OSV market, operational issues including delays in securing charter-out contracts, rising interest rates. The nature of the capex intensive business may also stretch its balance sheet, while significant delays may impact expected revenues. (Read Report)

Read Related Reports
PACC Offshore Services Holdings Ltd - IPO FACT SHEET
Tuesday, 22 April 2014
- UOB KayHian Research

Source : Bank of Singapore Equity Research


Posted on Thursday, April 10, 2014 | 10.4.14
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