SINGAPORE (April 12): OCBC has upgraded PACC Offshore Services Holdings (POSH) from “sell” to “hold”, with a higher fair value estimate of 33.5 cents.
In a Wednesday report, lead analyst Low Pei Han says this is because POSH’s stock price has declined about 7%, and is now closer to OCBC’s fair value estimate since downgrading the counter to “sell” on Feb 22.
Noting that offshore and marine (O&M) companies have been going through a tough time since the oil price crash in 3Q14, Low believes POSH is still in a relatively better position among the related stocks under OCBC’s coverage, with positive operating cash flows of US$38.2 million ($53.6 million) in FY16 and US$69.6 million in FY15.
She adds that the group has also been enjoying good relations with its banks despite its net gearing of 1x in FY16, due to non-cash impairments which reduced equity.
“Besides keeping a strong balance sheet to stay afloat during these uncertain times, it is also important to do so as oil majors are likely to disqualify bidders with weak financials,” says the analyst.
Meanwhile, Low says POSH’s ability to secure contracts for its vessels from the Middle East is another positive given that the region is still seeing good activity but this also means that the area is seeing a growing supply of offshore support vessels (OSVs) with the arrival of new tonnage from other regions.
“It is important that the supply growth does not outstrip the demand for OSVs,” she cautions.
As at 11.19am, shares of POSH are trading flat at 35 cents.
