• S$127m goodwill impairment
• POSH Arcadia delivery delayed till mid 2016
• Switch to P/NTA valuation

Goodwill and asset impairments

Pacc Offshore Services Holdings (POSH) reported a 29% YoY rise in revenue to US$71.8m and a 116% increase in gross profit to S$17.2m in 4Q15, supported mainly by the offshore accommodation segment which saw the deployment of the 1st SSAV, POSH Xanadu, in 2Q15. However, the group swung to a S$149.7m net loss in the quarter due to

1) S$127m impairment of goodwill,

2) S$21.4m impairment of fixed assets (a few AHTS vessels and a few PSVs), as well as

3) $12.4m share of loss from JVs.

This brought full year net loss to S$131.0m; excluding one-off items, core net profit is estimated to be around S$13.6m vs. S$9.7m in FY14, still below expectations. We understand that the 4Q loss on JVs was mainly due to $5m impairments taken by the Indonesian JV (PT. Win Offshore), as well as lower operating results by that entity.

Updates on SSAVs

Recall that POSH Xanadu, which is on a 1+1 year contract, will see its contract end in Mar. As mentioned in our earlier report, we are expecting the one year option will be exercised, but at a reduced charter rate. The 2nd SSAV, POSH Arcadia, will see its delivery further delayed to mid 2016, and the group is now bidding for projects in West Africa, Australia, North Sea, amongst others.

Strong support from banks

As of 31 Dec 2015, POSH still has 14 newbuilds contracted for delivery (expected by 3Q17), unchanged from a quarter ago. For these vessels, US$612m has been paid while US$161m is left outstanding. The group also has a US$300m term loan due in Jul 2016, but prior to Dec 2015, POSH has obtained commitment from the banks to refinance the loan with a longer tenor of five to seven years. In addition, POSH has renewed and secured new banking facilities of US$712m.

Switch to P/NTA valuation

With the increasing lack of earnings visibility and the potential for more asset writedowns, we switch our valuation from P/E to 0.4x P/NTA valuation, given the low ROE and depressed valuations of the industry. This results in a drop in our fair value estimate from S$0.33 to S$0.28. Maintain HOLD.

Source: OCBC Research - 22 Feb 2016