SINGAPORE (March 1): DBS Group Research is keeping Pacific Radiance on “hold” with an unchanged target price of 16 cents amid lingering concerns over its debt overhang.
While the long-term outlook has improved for the oil and gas industry in the last few months, Pacific Radiance saw revenue decline close to 36% q-o-q in the fourth quarter.
This was mainly due to weak revenue from its offshore support vessels (OSV) segment, as a result of utilisation and day rates remaining low.
“On the back of more stable oil prices and signs of higher y-o-y oil major capex in 2017, we expect a gradual recovery in the OSV market from late 2017 or 2018 (due to a lag effect),” says DBS lead analyst Suvro Sarkar in a Tuesday report.
As a result, Sarkar adds, the company’s net losses are expected to diminish in FY17/FY18.
However, Sarkar cautions that Pacific Radiance’s “August 2018 $100 million note maturity, high net gearing of close to 1.6x, and weak operating cash flows will remain an overhang on the stock”.
Pacific Radiance sees lesser near-term liquidity pressure in 2017 after it pushed its term loan profile from seven year to 12 years. “Bank loans classified as current have declined from US$103 million in 3Q16 to about US$49 million as of 4Q16,” says Sarkar.
“However, operating cash flows have been negative for five quarters now, and thus visibility on an eventual redemption of the August 2018 bonds remains low,” he adds.
As at 3.11pm, shares of Pacific Radiance are trading 0.2 cent higher at 15.5 cents.
