• Brazil remains difficult
• Looking at other markets
• Lower FV to S$0.44

Looking at other markets

Cost cutting plans by oil and gas companies have led to falling rig utilisation rates and in turn impacted the demand for offshore support vessels. For Pacc Offshore Services Holdings (POSH), the impact has been even greater as it faced country-specific challenges in Mexico and Brazil. Its JVs in Mexico continued to incur losses in 1Q15, and this amounted to US$5.3m, similar to 1Q14. Looking ahead, the Mexico JV losses are likely to be stemmed as POSH has transferred the vessels to its OSV fleet as they pursue international charters. Meanwhile, the group is also likely to look beyond Brazil for its 2nd SSAV (POSH Arcadia), given the difficulties in operating in the country.

Set-back in Brazil?

According to Upstream , Holland’s Sea Trucks had won a flotel job to carry out maintenance and upgrade work on Saipem’s FPSO that is chartered to Petrobras. The group had beat POSH, GranEnergia and Axis Offshore to secure the contract. Recall that POSH Arcadia had been looking for opportunities in Brazil, and given the tough environment there currently, we believe it may take some time before this SSAV contributes meaningfully, though we do not rule out any short-term jobs that may come up in the meantime (in or outside Brazil).

Healthy net gearing

Despite its challenges, POSH’s financial position remains strong, and its net gearing stood at a healthy 0.5x as at end Mar 2015. It has been relatively conservative in terms of its vessel newbuild programme, and we believe the PaxOcean yard in China offers some flexibility in terms of adjusting newbuild schedules and specifications.

Lower FV to S$0.44

Given the dim outlook of the industry, we tweak our estimates and also push our earnings contribution for the 2nd SSAV (POSH Arcadia) to 2Q16, trimming our FY16 earnings estimates by ~20%. After rolling forward our valuations to 8x blended FY15/16 earnings, our fair value estimate drops from S$0.50 to S$0.44. Maintain HOLD; we may be buyers at S$0.395 or lower.

Source: OCBC Research - 30 Jun 2015