PACC Offshore Services

DBS Group Research, May 27

A LEADING Asia-based operator of offshore support vessels, PACC Offshore Services (POSH) is also arguably one of the top five globally, operating a combined fleet of 112 vessels (including joint-venture vessels).

In a capital-intensive industry, being part of the Kuok Group has its distinct advantages; ready access to affiliated shipyards and lower financing costs enable it to not only achieve lower costs of ownership and compete favourably in the charter market, but also to identify opportunities early and enjoy first mover advantage in key growth markets.

Deepwater offshore accommodation market the next big driver. POSH will enter this market with two newbuilds to be delivered by end-2014, which will make it a key semisub accommodation vessel (SSAV) provider in the large berthing capacity space.

Along with its non-semisub assets, POSH should actually emerge as one of the top four offshore accommodation players by capacity in the world by 2015.

Superior returns can be expected from these semi-sub assets, given the tight market conditions, and lower ownership costs achieved by POSH, boosting margins and profits significantly from FY2015 onwards. POSH has already won a contract with attractive terms for the first SSAV from Petrobras.

We initiate coverage with "buy", and a target price of S$1.36.Our valuation peg of 10 times FY2015 earnings is in line with the average of regional peers, despite stronger growth potential on the back of a healthy balance sheet post-IPO. Key near-term catalysts will be:

i) Significant charter contract wins, including a contract for its second SSAV, which should provide very strong visibility for FY2015 earnings;

ii) Resolution of certain near-term issues at its Mexico JV; and

iii) Better-than-expected quarterly earnings delivery.

BUY