Singapore-based brokerage house UOB Kay Hian has suggested that the offshore and marine industry downturn has not bottomed yet.
Analysts from UOB Kay Hian highlighted that the offshore support vessel (OSV) tender activities are recovering gradually despite oil companies asking for a 30% cut in day rates, with OSV owners reciprocating with 10-15% reduction in day rates.
For instance, tendering activities in Malaysia are recovering with OSV demand coming from oil companies such as Petronas, Murphy, and Nippon Oil. The current activity level in Malaysia has risen compared with a quarter ago, but remains at half the level from a year ago.
However, day rates have dropped considerably, as evident from the daily rate of a 5,000 bhp anchor handling tug supply, which used to fetch around USD9,000 per day, as compared with the current rate of around USD7,500 per day.
“The current downturn is earnest and yet to bottom. The 2009 downturn was an aberration; the current one has greater similarities to the 1985 downturn, which saw large number of retrenchments, a lack of vessel jobs, and an oversupply of vessels and rigs,” explained UOB Kay Hian.
The brokerage house noted that there is still a large number of rigs and vessels under construction in Chinese yards, but at a slower and delayed pace.
“Defaults [in shipbuilding] have yet to occur, as yards and customers form mutually beneficial agreements in this difficult environment. However, a tipping point will come where cheap asset opportunities will arise,” added the brokerage house.
UOB Kay Hian recommended ‘buy’ for stocks of Singapore-listed offshore marine companies Sembcorp Industries, Ezion Holdings, and Triyards Holdings at target prices of SGD5.10, SGD1.52 and SGD1.05 per share, respectively.