SINGAPORE (Aug 16): KGI has downgraded its “hold” call for Pacific Radiance, with a revised target price of 12 cents.

The downgrade comes as the group reported its third straight quarter of losses in 2Q16, with core net loss coming in at US$15 million ($20 million), and amid concerns over its stretched balance sheet and weak cash flows over the last two quarters.

<hr/>See: <a href="http://www.theedgemarkets.com.sg/sg/article/pacific-radiance-sinks-net-loss-us58-mil-2q">Pacific Radiance sinks into net loss of US$58 mil in 2Q</a><hr/>

KGI analyst Joel Ng notes that the group had recorded its second consecutive quarter of negative operating cash flow in 2Q16, while net gearing had also risen to 1.4x from 1.1x in the previous quarter.

The group had achieved an improvement in utilisation rates, but these were offset by weak day rates. Ng expects subsea utilisation rate to improve in 2H16, after the group secures short-term contracts for its vessels in the region.

Looking ahead, the research house says that major oil companies are expected to continue cutting capex, leading to lower demand for offshore activities. It also notes an oversupply in the OSV sector, compounded by new build vessels being delivered.

Downside risks include further write-downs in 2H16 and weaker utilisation and charter rates while a key upside risk is a recovery in oil prices to above US$60/bbl.

Shares of Pacific Radiance closed 3.2% at 12 cents.

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