Excerpts from analysts' reportsJP 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).
Pacific Radiance's net profit attributable to equity holders surged 68% to US$50.2 million while revenue rose 17% to US$90.7 million in 1H2014 . Photo: Company
Drivers/catalysts: We see upside to consensus FY15E/16E earnings driven by (1) fleet addition and (2) upside risk to margins as company adds higher-margin assets to its fleet.
Valuation and risks: Our SOTP based valuation equates to a Dec-15 price target of S$1.75.
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.
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OTTO MARINE: Chartering Fleet Improvements Paying Off
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UOB Kay Hian lowers rating of Lantrovision to 'Hold'
Analyst: Loke Chunying
• More shareholder-friendly. We applaud management for its dividend payout (S$0.03) this year as it shows commitment to rewarding shareholders. This is the third consecutive year Lantrovision had paid out dividend (FY12: S$0.01; FY13: S$0.02). In addition, with greater visibility over Lantrovision’s blue chip clientele, we think it also increases the level of investor confidence in the company.
 Lantrovision is currently trading at 7.6x ex-cash FY15F PE.
Photo: Company• Our previous valuation is based on very conservative assumptions of a discount rate of 13% and 0% growth rate. With a display of greater commitment to rewarding shareholders with dividends coupled with increased visibility of its blue chip clientele, we believe the company deserves a lower risk premium. We lower our discount rate to 11% from 13% previously.
• Downgrade to HOLD with a slightly higher target price of S$0.70. Lantrovision is currently trading at 7.6x ex-cash FY15F PE. We continue to like Lantrovision for its strong balance sheet, attractive dividend yield (4.7%) and positive industry outlook as it rides on the data centre boom in the region.
However, with the recent price surge (the stock has gained 34% since our initiation in May), we think the risk and reward balance has become less attractive. Recommend entry at S$0.58.
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