"ETIKA to give special dividend"; Target for POSH is $1.40

OCBC Investment Research starts coverage of POSH with $1.40 target

Analyst: Andy Wong 

Major OSV operator with a large, young and diversified vessel fleet 
PACC Offshore Services Holdings Ltd. (POSH) is a leading Singapore-based company which operates a young and diversified fleet of 112 offshore vessels (including 45 which are owned by its joint ventures), as at 31 Dec 2013. 

According to independent market research consultant Infield Systems Limited (Infield), POSH is the largest Asia-based international operator of offshore support vessels (OSVs) and one of the top five globally, as at 31 Dec 2013. It also has the youngest deepwater AHTS and PSV fleet and midwater AHTS and PSV fleet globally, with an average age of 2.3 and 2.2 years (as at end Dec 2013), respectively, according to Infield. 

We believe this strongly enhances POSH’s competitive advantage. 

POSH's after-tax profit is forecast to grow at 59% CAGR from FY13-15. Photo: Company.

Poised to benefit from robust industry fundamentals 

Infield believes demand and supply fundamentals are sufficient to support higher oil prices in the long-term. We believe this will encourage continued capex on exploration and production activities, especially in deeper waters. 

Offshore capex is projected to increase at a 10.5% CAGR from 2013 to 2017, based on Infield’s estimates. Correspondingly, we expect this to boost demand for offshore support vessels.

In a bid to take advantage of the buoyant industry trends, POSH has put in place orders for 19 new vessels (as of 30 Jun 2014), with deliveries expected from 3Q14 to 1Q16. In our view, this new fleet will provide additional depth and breadth to POSH’s offshore offerings. 

Forecasting 59.0% PATMI CAGR from FY13-15F; initiate with BUY

In particular, we expect POSH’s two new semisubmersible accommodation vessels (SSAVs) to propel its growth ahead in FY15, given its high specifications.

Upon delivery in 3Q14 and 4Q14, POSH will operate the youngest high-berth accommodation vessels fleet in the world, according to Infield. We forecast POSH to register a 59.0% CAGR for its PATMI from FY13 to FY15. 

Applying a target PER peg of 11x (close to 5% premium to its peers average, given its strong competitive positioning and superior margins) to our FY15F EPS, we derive a fair value estimate of S$1.40. Initiate coverage on POSH with BUY. 

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