• Upgrade to Neutral; medium outlook bright despite a weak 3Q16 We upgrade our rating on Renaissance to Neutral as the share price has receded 14% over the past three months and is near our FV. Despite the weak 3Q16 results we maintain our FV as our medium-term outlook is roughly unchanged, supported by USD500mn TCO contract. However, we do not see any positive share price catalysts as the ST negative outlook does not support an immediate recovery. Apart from any new contract awards, we believe the chance of positive operational surprises are less likely as core businesses remain challenging.
• Provisioning to bring further pain in 4Q16 Marine assets are being revalued during 4Q16 and management expects to book a provision as the vessel market value continues to weaken and cash flow does not support the current asset value. The impact is yet to be evaluated (OMR30mn write off in 2015 as part of marine asset revaluation); hence, we do not include it in our forecasts. Nevertheless, we do not rule out further derivatives provisioning from Standard Chartered Private Equity (SCPE) with regards to its USD75mn private equity investment, as management could not conclude negotiations with respect to the investment tenure beyond 1Q17 and its IRR expectation. Mgmt. reiterated that provisioning would not impact debt covenants.
• 2017: Another challenging year across segments We do not expect any significant operational revival at the marine division until we see a meaningful recovery in the oil majors’ capex cycle, which is unlikely in the short term. We expect vessel day rates and utilisation to remain flat as marginal progress in MENA is likely to be overshadowed by weakness in the Caspian region (largely barges). Continuous lag at Duqm PAC project (now scheduled for 1Q17 opening versus 3Q16 previously) along with weak occupancy at legacy contracts will weigh on the contract segment. Even though the new business acquired in the UAE is expected to start contributing to its 2017 bottom line, it is too small to make an impact.

Sameer Kattiparambil