JP Morgan says Pacific Radiance is its top pick in OSV space
Analyst: Ajay Mirchandani
Investment thesis: Pacific Radiance (PACRA) is one of the leading regional offshore support vessel (OSV) owners with a fleet size of over 130+ vessels (60+ fully owned; 70+ owned under Joint Ventures).
The company’s key competitive edge includes:
a) its experienced management team (ex-founders of Jaya Holdings which was one of the largest OSV owners in ’06-07);
b) young fleet (one of the youngest globally with average age of ~4 years); and
c) competitive business model of fleet expansion (building competitively at 3rd party yards) and recycling by selling down older assets either to (i) market (at premium thus booking gains due to lower cost to build) or to (ii) Logindo, its 35% owned Joint Venture based in Indonesia (which benefits from cabotage policy).
Key risks remain lower than expected utilization. Every 2.5% lower than expected utilization has a 7-8% impact on net earnings. Another key risk remains delay in contracts for upcoming expiry of vessel charters and higher than expected execution risk and competition.
Related story: OTTO MARINE: Chartering Fleet Improvements Paying Off