To The Moon

Marine stocks on the Singapore Exchange have thrived in the past year, with analysts upbeat about the sector's continued growth. Yangzijiang Shipbuilding's share price rose nearly 80% in the past year. Marco Polo Marine increased by over 12%. Seatrium leaped about 52% in the last six months, and Nam Cheong climbed nearly 150% during the same period. Analysts cited factors like an industry upcycle, supply shortage, and a rebound in global demand.

CGS International's Singapore research head, Lim Siew Khee, stated that the shipping industry is in an upswing of the ordering cycle. She attributed this to the fact that, post-Covid-19, there has been a rise in shipping activities, which in turn has led to elevated freight rates. As a result, shipping companies have managed to strengthen their financial positions. This favorable situation has translated into a record number of orders for shipyards like Yangzijiang. Lim also pointed out that shipyard capacity is constrained, with the majority of orders being scheduled for production starting from 2028.

Greener Vessels and LNG Carriers

Analysts highlighted that the 2020-implemented International Maritime Organization (IMO) sulfur emissions regulations for the shipping industry (IMO 2020) have spurred demand for more eco-friendly vessels. These rules mandated a reduction of the global upper limit of ships' fuel oil sulfur content from 3.5% to 0.5%, aiming to decrease harmful ship-emitted pollutants.

Lim indicated that numerous liners have launched fleet renewal initiatives to comply with these regulations, thus stimulating demand for dual-fuel containerships and even environmentally-friendly gas carriers. Likewise, Ng Xin-Yao, an investment director at abrdn, noticed a trend towards greener vessels post-IMO 2020, along with a growing appetite for liquefied natural gas (LNG) and LNG carriers. He added, “If capacity expansion stays restricted, we believe this could potentially mark a decade-long cycle.” Ng stated that Singaporean shipbuilders could profit from the increasing demand for LNG carriers as Korean shipbuilders, Singapore's main competitors, are redirecting their focus to large LNG carriers. “Throughout the sector, demand still outstrips supply. Newbuild prices have been on the rise. Korean and Singaporean shipyards, and increasingly Chinese ones too, have their capacity fully booked at least until 2027, and capacity beyond that is also getting filled. “

Simultaneously, a less robust Chinese economy has kept steel prices low. Hence, revenue, profit, and cash-flow prospects look promising for the next few years,” he continued. On a global level, Lim noted that orders for floating production storage and offloading (FPSO) units, along with floating production units, have increased. She attributed this to crude oil prices hovering between US$70 and US$90 per barrel since late 2021. Compared to the US$55 per barrel from 2015-2020, this price hike may have led cash-rich oil producers to increase their capital expenditure plans.

What should investors pay attention to? Ng said he favors shipbuilders in Singapore, Korea, and China as shippers resume investing in new vessels. He also added, “We also like service companies that stand to gain from the increased vessel deliveries.” CGS analysts are bullish on Yangzijiang due to its substantial order book with deliveries scheduled until 2029. They believe the company could exceed its 2025 order-winning target, which management has indicated will be higher than last year's US$4.5-billion target.

They also mentioned $Seatrium Ltd(5E2.SI)$ , highlighting that it secured contracts worth over S$16 billion for Petrobras P-series FPSO vessel platforms and a TenneT offshore converter platform in 2023 and 2024. Maybank Securities analyst Jarick Seet predicted that strong demand from the oil and gas (O&G) sector and offshore wind farms will continue to support the shares of Marco Polo Marine and CSE Global. Regarding Marco Polo Marine, he said, “We anticipate its Commissioning Service Operation vessel to start contributing in the second half of FY2025, and charter rates to remain robust and potentially increase further due to high demand from both O&G and offshore wind farms.”