PACC Offshore Services

PACC Offshore Services: OCBC initiated coverage last Friday with a BUY rating, TP $1.40. PACC’ has a leading market share in Asia, with its quality and quantity of fleet in line with expected industry development. PACC has a strong market positioning among its peers for its superior fleet of vessels. The company directly owns 77 vessels and indirectly owns 45 vessels through its subsidiaries, making it the largest fleet in Asia and fourth largest in the world. They operate in a diverse range of E&P activities, from anchor handling, ocean towage and installation to ocean transportation, heavy-lift and offshore accommodation services. PACC also has one of the youngest fleet in the market, giving it reputation for greater reliability, better safety records and more advanced technology. In addition, the company is competitively positioned in deepwater AHT/AHTS for its large engine power capacity and cargo carrying capacity. PACC is adequately prepared to capture expected industry growth in the deepwater E&P segment. The company has 19 new vessels scheduled for delivery from 3Q14 to 1Q16, two of which are in the high-end SSAV market that is undersupplied. Vessels aside, PACC holds strong long-standing relationships with large, reputable clients and has an experienced management team. The “charter-free” valuation of the market value of its existing 77 directly-owned vessels is 25.4% higher than its latest net book value recorded. OCBC likes PACC for its strong competitive advantage and attractive FY15E valuations. PACC is trading at 9.0x FY15E P/E, undervalued compared to Bloomberg peer set average of 14.3x FY14P/E and 10.3x FY15 P/E. OCBC believes PACC should be trading at premium, not discount, to its peers.