POSH

POSH: (S$0.36) 3Q15 results belies a possible turnaround?
PACC Offshore Services (POSH) 3Q15 net profit beat expectations despite slipping 14.1% y/y to US$12.6m, forming 40% of FY15 estimates. Excluding vessel sale gains, core earnings surged 293% to US$11.8m.

Revenue grew 19.9% to US$80.4m on better takings from its offshore accommodation (OA) and habour services and emergency response (HSER) units, pared by slippage in its offshore supply vessels (OSV) and transportation & installation (T&I) businesses.

Segmental performance:
1) OSV
Revenue: US$38m (-11.5%); gross profit: US$5.3m (-49.1%)
The poor performance in POSH’s OSV sector was attributable to lower charter and utilisation rates of 74% (3Q14: 83%).

2) OA
Revenue: US$26.9m (+199.8%; gross profit: US$10.9m (+235.2%)
The OA sector reported better performance on new contributions from its POSH Xanadu vessel as well as three new light construction vessels. This was partially offset by lower utilisation rates of existing vessels.

3) T&I
Revenue: US$7.2m (-26.2%; gross profit: US$0.8m (-74.8%)
T&I’s weak performance was down to lower charter and utilisation rates.

4) HSER
Revenue: US$8.2m (+55.7%); gross profit: US$1.3m (+297%)
Higher contribution was mainly due to a salvage job during the quarter.

Earnings was crimped by the absence of gains on vessel disposal of US$11.6m recognised in 3Q14 but this was partially mitigated by positive contributions from POSH Terasea JV of US$0.9m (3Q14: US$5.7m loss).

Balance sheet is sound with stable gearing of 45.6%. Moving forward, the group has 14 vessels under construction/order with expected delivery by mid ‘17. It will take delivery of two vessels (an SSAV and a floating crane barge) in 4Q15.

Maybank-KE notes that POSH’s FY16 performance will hinge on its ability to secure a charter for the new SSAV (POSH Arcadia) by 2Q16.

In light of depressed oil prices, oil majors have cut capex budgets, deferring oil exploration and field-development activities. Coupled with the vessel oversupply situation, charter rates and utilisation rates will remain subdued for an extended period.

As such, the house has cut its TP to $0.50 to $0.65 to reflect a longer downturn.

POSH is currently priced at a hefty 61.9% discount to its NAV.

Latest broker ratings:
Maybank-KE maintains Buy but cuts TP to $0.50 from $0.65
OCBC is putting its Sell rating with TP of $0.33 under review