• Raise FV on new TCO contract; valuation unappealing We raise our FV for Renaissance Services to OMR0.226/share from OMR0.188/share, as we now account for the new Tengizchevroil (TCO) contract secured by RNS, expected to have an impact on revenue starting 2H18. However, the FV was partly overshadowed by the dilution impact expected from the MCB’s (issued shares to increase to 340mn vs. 290mn currently) and weaker earnings estimates over the short term. Share price retreated 17% over the past three months, but still trades 12% above our FV; hence, we maintain our Sell rating. Any significant improvement in vessel utilisation and day rates in the short term, albeit less likely, would be a positive risk to our estimates.
• Outlook still challenging for 2016 and 2017 The weak day rate and utilisation level at the marine segment (Topaz) and lower occupancy rate, Duqm project delays at service business (Renaissance) challenges 2016 and 2017 earnings. We now estimate RNS to report a net loss of OMR0.5mn in 2016 vs. previous net profit estimate of OMR2.5mn and a net loss of OMR34.8mn in 2015. Management’s indication of possible further provisioning for its marine assets, which we did not account for, is a key risk to our estimates and challenges its leveraged balance sheet. Nevertheless, if management’s negotiation with Standard Chartered Private Equity (SCPE) to extend the term of its USD75mn equity infusion proves unsuccessful, this would further pressure the already-strained cash flow.
• TCO contract to revive earnings by 2H18 The Tengizchevroil (TCO) contract (worth cUSD350mn) RNS had secured recently would start contributing to its revenue from 2H18. Even though the full details are not available, we expect it to improve operating margin at marine division to 32% by 2019 from the current 27.7% and affect our 2019-20 earnings estimates positively by 56% and 38%, respectively. However, a key concern is management’s aggressive depreciation plan for the 15 vessels dedicated to this contract, pointing towards infirmity of the vessels to secure contracts beyond TCO.

Sameer Kattiparambil