Home » , » PACC Offshore Services Holdings Ltd - Asia's largest OSV name goes big on accommodation but consensus is 12-14% too high; initiate with OW

PACC Offshore Services Holdings Ltd - Asia's largest OSV name goes big on accommodation but consensus is 12-14% too high; initiate with OW

Shared By StockFanatic on Monday, August 11, 2014 | 11.8.14

Initiate with Overweight, Dec-15 PT of S$1.30
PACC Offshore Services Holdings (POSH) operates the largest offshore support vessel fleet in Asia and among the top 5 globally, with strong parentage of the Kuok (Singapore) Limited Group

Its diverse 112-strong fleet offers a full suite of offshore support vessels that spans across 4 key business segments: 
(i) Offshore Supply Vessels (OSV-the youngest mid and deepwater AHTS (16 units) & PSV (13 units) fleet worldwide), 

(ii) Transportation & Installation (T&I-with a solid track record in the deepwater segment), 

(iii) Offshore Accommodation (OA-with addition of 2 x 750 men SSAVs and 3 x 238 men vessels), and 

(iv) Harbour Services & Emergency Response (HSER-1 of 6 licensed operators at the port of Singapore).

Uniquely positioned to benefit from deepwater accommodation demand: 
The delivery of two high-end semi-submersible accommodation vessels (SSAVs) in FY15E should generate superior returns (~50% RoEs for ~US$210 mn asset) for POSH due to the tight market conditions and competitive costs. We expect the OSV (mainly driven by higher utilization of 6 x PSVs from FY14E) and OA segments (OSV/OA is 39%/37% of POSH's ‘15E revenue and 28%/ 52% of its overall FY15E gross profit) to drive growth, with 3-year ’13-16E EBIT CAGRs of 23% and 104% respectively, on the back of expanding fleet translating to an overall 28% 3- year EPS CAGR.

Consensus is 12-14% too high, in our view; downward earnings revisions needed to reflect true LT potential expected:

Key reasons for 
(i) a later timing for earnings contribution of POSH’s 2nd SSAV (May 2015 as per JPM vs. Jan 2015 for Consensus), 

(ii) likely delay in a resolution for losses for POSH’s JV in Mexico only in late-14, and 

(iii) a weak performance from the T&I division in the shallow water segment in 2014.

Technical Analysis
Daily Chart
Low gearing, strong CF generation gives bandwidth to expand fleet: 
POSH’s ties with the Kuok Group, low gearing post-IPO and ability to generate strong cash flows (especially with the new SSAVs coming onboard) place it in good stead to fund its fleet expansion via operating cashflows, debt funding. Its healthy net gearing ratios of 40%, 24% and 7% from 2014 to 2016 also compare favorably with its peers. 

Valuations, Risks Our Dec-15 PT of S$1.30 equates to 11.0x FY15E P/E and 1.3x FY15E P/B

Key risks to our PT:
(i) delays in contract wins/low utilization rates and 

(ii) execution risks. (Read Report)

Source : JP Morgan Asia Pacific Equity Research

Posted on Monday, August 11, 2014 | 11.8.14
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