Singapore O&M companies enjoy winds of recovery, new opportunities in renewable energy

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 benefiting from their existing order books, experts said.

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.

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 per cent and 64 per cent 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 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.

Interest in Seatrium continues

Investors also continue to focus on Seatrium, which returned to

profitability with a net profit of $36 million

in the first half of 2024. It has

secured $13.4 billion worth of new orders

from new and repeat customers over that same period.

Ms Ho noted that Seatrium is active in areas like providing high-voltage direct current transmission systems.

“Combining the strength of former Keppel Offshore & 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.

She has a 12-month price target for Seatrium of $3. It closed at $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.

Dyna-Mac wins analysts’ favour

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 per cent to $38.8 million for the first half of 2024 on higher productivity, revenue and project completion.

Ms 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.

Mr Seet said: “We expect Dyna-Mac to win larger contracts, boosting its revenue and order book, which is already at a high.”

Brighter outlook for O&M firms

Offshore services provider Beng Kuang Marine saw its revenue surge 88.1 per cent for the first half that ended on June 30, compared with the same period in 2023.

Mr Seet expects the second half of the year to likely replicate or even improve its first-half 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.

Beng Kuang Marine was added to the SGX watch list under the Financial Entry Criteria in June 2023 for accumulating losses. But with its strategic initiatives to rationalise and streamline operations, and discontinuation of loss-making activities, the company progressively enhanced its gross profit margin to 35.5 per cent in the first half of the 2024 financial year.

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 renewable energy give these players vast opportunities, experts said.

Mr 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. 

Mermaid Maritime, an international subsea and offshore drilling services company, also made RHB’s top small caps list. RHB analyst Vijay Natarajan noted that upsides for the firm include sustained high oil prices, which can lead to more contract wins.

“With a sturdy order book and high oil prices, its earnings recovery could well continue on this year. Its relatively low net debt, coupled with a supportive parent and major shareholder, provides a buffer against any downsides, in our view,” he said.

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 Ms Ho.

Mr Seet also pointed to global economic risks, such as a recession, or an escalation in geopolitical conflicts.