These are the key takeaways from Pacific Radiance’s 4Q14 results briefing:

Lower utilization of DSVs affected 4Q14 but seeing strong enquiries in 2Q15 – DSV (diving support vessel) utilization for 4Q14 was low with 1 DSV working less than 1 month and the other was idle. Oil majors had a knee-jerk reaction to oil price shocks and started to defer maintenance. However, deferment cannot last forever as existing oil fields still need to be maintained. DSV utilization for 1Q15 should be similar q-q but management is seeing strong enquiries for 2Q15. Full year utilization of DSVs is >50%, OSVs (offshore support vessels) are close to 80% and tugs and barges are close to 60%.

Strong cost management and operating in cabotage-protected waters will help them navigate through near term weakness – They are seeing some competitors being forced to price down on tenders to meet bank and loan commitments. Pacific Radiance has an advantage of being more cost competitive. Margins are expected to be compressed this year alongside ~10% reduction in charter rates. They are prepared for 12-18 months of downturn but believe demand and supply in the oil & gas market will rebalance in the mid-term.

Fleet size above 130 including JVs – They took delivery of 2 vessels in 4Q14, bring their own fleet size to 61 and above 130 including their JVs. 2019 target of 100 vessels under them is flexible as they can transfer vessels to whichever JVs with opportunities. We note that they have also reduced net gearing from 0.6x to 0.5x a year ago.

Investment Action

No stock rating or price target provided, as we do not have coverage on Pacific Radiance Ltd.

Source: Phillip Securities Research - 27 Feb 2015