SINGAPORE (Nov 8): DBS Group Research is keeping its “hold” call on PACC Offshore Services Holdings (POSH), and slashing its target price to 25 cents, from 32 cents previously.

Despite recent share price weakness following the completion of the bulk sale by major shareholder Malaysia Bulk Carriers Berhad (MBC), the brokerage warns the worst might not be over yet for PACC Offshore.

Shares in POSH have fallen 50% from its 52-week-high of 45 cents on Feb 2, and are currently trading at 22.5 cents.

“Near term earnings performance may deteriorate in coming quarters compared to 2Q18/3Q18 levels,” says analyst Suvro Sarkar in a Monday report. “In addition, further asset impairments are likely in 4Q18.”

POSH last week reported a net loss of US$5.3 million ($7.3 million) for the 3Q18 ended September, narrowing from a net loss of US$5.8 million a year ago.

3Q18 revenue jumped 52% to US$79.7 million, from US$52.5 million a year ago, on the back of higher contribution from the Offshore Accommodation segment on improved vessel utilisation.

“POSH’s earnings are highly leveraged to the utilisation of the Semisubmersible Accommodation Vessel (SSAV) assets. However, we believe share price will only re-rate meaningfully when the OSV (offshore support vessel) division comes back to life with an improvement in day rates driving margins in addition to the ongoing improvement in utilisation rates,” Sarkar says.

However, Sarkar notes that OSV segment performance in 3Q18 disappointed again amid industry overcapacity, despite higher oil prices and expected rise in offshore capex.

“While future contract visibility remains decent, there will be periods when the SSAVs will be unutilised between contracts, leading to lower group earnings in those periods,” he adds.

As at 1.11pm, shares in POSH are trading flat at 22.5 cents.