Green projects: A general view of the offshore wind farm Hywind Tampen, North Sea. — Reuters
SINGAPORE: Offshore and marine (O&M) companies listed here have bright prospects ahead, as they are well positioned to take on projects in the growing renewables space while also benefitting from their existing order books, experts say.
These companies revealed good results in the latest earnings season, when many reported profits for the April to June quarter and the first half of 2024 (1H24).
This trend is expected to continue in the months ahead, experts added, with the firms enjoying a strong pipeline of work and the capabilities to take on greener projects as well.
OCBC Investment Research head Carmen Lee said: “In general, the O&M sector has seen a continued recovery and this is also seen in the share price performance of a number of names in the sector.”
For example, Dyna-Mac and Yangzijiang Shipbuilding have delivered total returns of 74% and 64% respectively year to date, based on Sept 6’s closing prices.
She noted that other names such as Beng Kuang Marine and Mermaid Maritime have also performed well.
Maybank Securities analyst Jarick Seet pointed out that the floating production storage and offloading (FPSO) space continues to be robust, as well as offshore support vessel charters for oil and gas. He added that renewable energy (RE) opportunities, such as wind farms, continue to be bright spots for Singapore’s O&M companies.
DBS analyst Ho Pei Hwa said O&M firms are positioning themselves to benefit from the clean energy transition by leveraging their offshore engineering capabilities in wind farms and other offshore renewables projects.
Investors also continue to focus on Seatrium, which returned to profitability with a net profit of S$36mil in the 1H24. It has secured S$13.4bil worth of new orders from new and repeat customers over that same period.
Ho noted that Seatrium is active in areas like providing high-voltage direct current transmission systems.
“Combining the strength of former Keppel Offshore and Marine and Sembcorp Marine, Seatrium is uniquely positioned as a leading globally competitive clean energy solutions provider, with distinctive competencies – a world-class, global network of yards, strong offshore engineering capabilities and innovation,” she said in a note in August.
Ho has a 12-month price target for Seatrium of S$3. It closed at S$1.56 on Sept 6.
OCBC analyst Ada Lim noted that Seatrium’s share price saw some correction after the authorities in Brazil asked for information related to Operation Car Wash, a probe into allegations of payoffs to secure energy-related contracts in that country.
“Nonetheless, we think its fundamental industry outlook remains constructive, and we see positive momentum especially for offshore platforms being contracted at improving margins in the current upcycle.
“However, investors may need to be patient as it will take time for Seatrium’s management to execute on its order book and deliver the performance necessary to restore market confidence in the stock,” she said.
Other O&M companies also posted strong results and have good prospects, experts noted.
Dyna-Mac, a leading fabricator of offshore topside modules and facilities such as FPSO vessels, saw its profit surge 283.9% to S$38.8mil for the 1H24 on higher productivity, revenue and project completion.
Lim said its strategy to remain focused on constructing niche topside modules and to differentiate itself through quality and timely deliveries positions it well to capture demand for such modules amid a shortage in capacity to build them.
A topside module refers to the structures and equipment on the upper section, or top side of an offshore platform, such as an oil rig or FPSO vessel.
Dyna-Mac is also listed among RHB’s top Singapore small-cap companies in its 2024 edition.
RHB analyst Alfie Yeo said in the note that the company has been adding yard capacity and that it also plans to move up the value chain by diversifying into liquefied natural gas and renewable hydrogen or ammonia modules, among others.
Seet said: “We expect Dyna-Mac to win larger contracts, boosting its revenue and order book, which is already at a high.”
Other companies like Marco Polo Marine also face better prospects. For one thing, robust demand for offshore wind farms in Asia and the transition to RE give these players vast opportunities, experts said.
Yeo said in the report on top small caps that the outlook is “buoyant” for Marco Polo Marine, as its ship-chartering business continues to support offshore oil and gas projects, especially in South-East Asia, and wind farms in Taiwan.
But experts also highlight risks to O&M companies, including a steep learning curve when venturing into new business segments.
“Sustainable projects could also get competitive in a more mature market, pressing down project returns. The decarbonisation drive is also heavily dependent on government policies, especially subsidies,” said Ho.Seet also pointed to global economic risks, such as a recession, or an escalation in geopolitical conflicts. Offshore services provider Beng Kuang Marine saw its revenue surge 88.1% for the 1H24, compared with the same period in 2023.
Seet expects the 2H24 to likely replicate or even improve its 1H24 performance, due to the robust tailwind in the FPSO sector.
“However, much higher than expected administration expenses hampered operating margins but we believe this will improve going forward,” he added. — The Straits Times/ANN
