• US$310m impairments in 4Q
• OSV the biggest drag
• Downgrade to SELL

FY16 results hit by impairments

PACC Offshore Services Holdings (POSH) reported a 49% YoY drop in revenue to US$36.7m and a net loss of US$345.4m in 4Q16, bringing full year net loss to US$371.4m. Gross loss widened from US$1.4m in 3Q16 to US$9.5m in 4Q16, but what dragged the group’s earnings was a US$199m impairment on fixed assets, as well as a US$111.2m impairment on goodwill. As mentioned in our earlier report on 8 Nov 2016, the group will be impairing the carrying value of the goodwill arising from the acquisition of PSA Marine’s offshore business in 2007, as well as its own fleet of vessels. Excluding exceptional items, core net loss was US$35m in 4Q16 and US$61m for the full year, better than our expectations for a full year US$81m core net loss.

OSV the biggest drag

Across its four segments - OSV, transport & installation, offshore accommodation and harbour services emergency response – only the last segment (HSER) saw gross profit in 4Q16; the rest registered gross losses. The OSV segment had utilisation of 62% in 4Q16 vs. 59% in 3Q16, and reported the largest gross loss of US$4.9m across the various divisions. This was also the business segment that saw the most impairment on fixed assets (US$163m out of the total US$199m).

FV raised to S$0.33; downgrade to SELL

Due to the impairments, the group’s net gearing rose significantly from 0.5x in FY15 and 0.6x in 3Q16 to 1.0x in FY16; we understand that no bank covenants were breached in 2016. Meanwhile, the group still has undrawn bank lines of about US$282.9m in the form of revolving facilities.

Looking ahead, we would monitor if the group is able to secure work for POSH Xanadu, whose contract is expected to end next month. Prior to this set of results, we had a FV of S$0.30 based on 0.45x FY17F NTA. With the latest impairments, we increase our multiple to 0.7x NTA, such that our FV rises to S$0.33. With the downside of 10%, we downgrade our rating to SELL.

Source: OCBC Research - 22 Feb 2017