Rosier prospects for offshore marine sector

Analysts upbeat on service providers but are mixed in views on vessel builders because of Chinese competitionSingaporeGROWING demand from oil majors has fuelled analysts' optimism about the Singapore offshore marine industry.迷你倉 The analysts see brighter prospects for service providers but are mixed in views on the outlook for vessel builders because of competition from Chinese yards.Given more offshore oil & gas exploration and production projects, demand for offshore services and vessels is expected to increase. This will help improve price margins in the sector. But for the shipbuilders, one view is that the continuing competition from Chinese yards is a constraining factor."We favour offshore service companies over the offshore vessel builders," said Vincent Fernando, analyst at Religare Capital Markets. "We basically are very concerned about the rise of Chinese competition to build rigs even though the Chinese yards for many years had been discounted as not being able to match the level of their Singapore counterparts. But we have seen that they have now become direct competitors to Singapore."Moreover, Mr Fernando added, the traditional shipbuilders in China are facing a difficult time right now in constructing container and bulk ships. So they are channelling their excess yard capacity towards offshore projects, where there is greater demand. Further, many of the offshore vessel builders in China are state-owned enterprises and therefore able to offer very aggressive financing terms to their customers, compared to their Singapore counterparts.For this reason, Mr Fernando is negative on local shipbuilders such as Keppel Corporation and Sembcorp Marine even though they have secured $4.1 billion (Keppel Offshore & Marine) and $4 billion worth of contracts respectively so far this year."If you look at the actual market share, the Chinese yard迷你倉最平 have won much more this year, which is the first time ever. So you are actually seeing a huge market shift while year-on-year orders (for both companies) are down. Thirdly, margins are lower."He is, however, more bullish on offshore services firms such as Ezion Holdings and Swiber as they are seen as best-placed to benefit from the competition among yards with higher bargaining power to capitalise on the growing demand from oil & gas majors.Other analysts BT spoke with generally agreed that services firms in the sector had comparatively brighter prospects but they were also upbeat on vessel builders in Singapore. For instance, earlier this week, OSK-DMG upgraded its rating for Singapore's rig builders to overweight from neutral even though there were concerns over rising competition and consensus earnings downgrades. They turned positive as the potential recovery in shipbuilding orders and tightening credit may ease competition for offshore orders as yards in China and South Korea move back to their traditional business, thus bringing some relief to the intense competition in the offshore market."The competition will be less intense going forward as the competition from Chinese orders has already dominated the headlines in the last 10-12 months. I do not see competition being worse than what it is. It could in fact be improving," said Jason Saw, assistant vice-president of research at OSK-DMG.The research firm prefers Sembcorp Marine over Keppel Corporation and maintains it at buy with a target price of $5.60. Its analyst Lee Yue Jer also highlighted Malaysian-based and Singapore-listed offshore vessel builder Nam Cheong as a rising star within the sector due to its position as an industry leader. He also singled out Marco Polo Marine as a stock in the sector to watch as it is expected to benefit from strong growth from business in Indonesia.迷你倉