Pacific Radiance

Pacific Radiance: UOBKH sees PACRA as top pick in oilfield services sector. PACRA broke into Mexico market with 49-51 JV with local partner that is small-scale OSV operator, presenting new opportunities for company. Gross margins for 2Q2014 are expected to remain high at 35-40%, slightly down from anomalously high GM of 40.2% in 1Q14. Meanwhile, order momentum is in place, with 6 more additions since the beginning of 2014. In total, 25 vessels are pending delivery, 12 in 2H2014 and 6 in 2015. The construction of its own shiprepair yard, targeted for completion by 2H2015 – 1H2016, is expected to significantly reduce increasing shiprepair costs as its fleet expands. PACRA remains differentiated from other OSV operators, being able to sell its fleet at 10% higher gross margins than competitors. They build vessels directly in China to cut cost by about 20%, and are present in markets with high barriers to entry. The operator also regularly rejuvenates and renews its fleet. UOBKH values PACRA at 11.5x 2015f PE, 20% premium to the long-term 1-year forward PE mean of 9.5x PE for the sector. TP is S$1.55 against current price of S$1.38 (12.3% upside).