Pacific Radiance Ltd -
STI : 3,174.65
Price Target : 12-Month S$ 1.05
Firing up growth engines
• Established offshore support vessel (OSV) owner/ operator with plans to go big
• Will benefit from ongoing recovery in OSV market and presence, through joint ventures, in markets protected by cabotage laws
• Expect the Group to register strong 29% net profit CAGR over FY12-15 period
• Initiate coverage with BUY rating and S$1.05 TP
Growing offshore support services player
PacificRadiance Ltd. (PRL) is a rapidly expanding Singapore-based provider of OSVs to the oil & gas, subsea and related industries. Armed with a young, diverse fleet with an average age of three years, the Group is enjoying rising utilisation and charter rates. Effective control of the supply chain keeps shipbuilding costs low without compromising quality, and enhances returns on capital. An active fleet management and renewal strategy also helps it move up the value chain while delivering recurring vessel disposal gains.
Right place, right time
The OSV industry is in a sweet spot now. The booming offshore capex plans and record orders for drilling rigs over the last two years will drive demand for OSVs going forward. Falling vessel-to-rig ratios and a high proportion of aging vessels means demand-supply dynamics will be favourable for OSV players. The Group is also reaping rewards from its early move into markets protected by cabotage laws like Indonesia; its 35%-owned associate PT Logindo is a key player in the Indonesian OSV market and recently completed an IPO to accelerate growth.
Initiate coverage with BUY rating and S$1.05/share TP
Our TP is pegged to 10x FY14 earnings (adjusted for one-off tax write-backs). The target PE multiple is in line with the average for regional small-mid cap and European peers, but is at a discount to larger US-based competitors. Our TP also implies 1.4x FY14 P/BV, which is justified given its superior 16% ROE profile.
There is room for re-rating when there is more visible evidence of the OSV market recovery. The key near-term catalysts are significant charter contract wins, announcement of network expansion through new JVs, and better-than-expected quarterly earnings.