Overview of the Offshore Marine Sector
The offshore marine (O&M) sector enters 2025 with renewed optimism, bolstered by the pro-energy stance of the Trump presidency and its “drill baby drill” mantra. This sentiment has heightened expectations for increased offshore activity, tighter market dynamics, and upward pressure on rig and offshore support vessel (OSV) day rates. With oil prices remaining favorable and the industry grappling with limited capacity growth, the outlook for key players in the sector appears promising.
UOB Kay Hian maintains an OVERWEIGHT rating on the sector, with top picks being Seatrium and Marco Polo Marine.
Seatrium (Ticker: STM SP)
Key Highlights
- Seatrium holds a strong competitive position in the global offshore marine sector and is a key beneficiary of the positive dynamics expected in 2025.
- The company is actively building eight out of Petrobras’ eleven Floating Production Storage and Offloading units (FPSOs) set to be deployed offshore Brazil between 2H24 and 2028.
- Petrobras plans for an additional 7-11 FPSOs to come online post-2029, potentially worth \$20 billion to \$30 billion, with contracts likely to be awarded within the next 12-24 months.
- Seatrium expects limited new rig supply over the next 2-3 years, a trend that should benefit Keppel’s efforts to sell its 13 legacy rigs.
Financial Metrics
The stock has a target price of S\$2.80, implying a 25.6% upside from its current price of S\$2.23. For 2024, the company’s revenue is forecasted at S\$8.343 billion, with a projected profit of S\$105 million. Notably, Seatrium’s P/B multiple of 1.4x is 1SD above its five-year average, reflecting its strong global position.
Recommendation
UOB Kay Hian recommends a BUY rating for Seatrium, emphasizing its exposure to strong offshore marine dynamics, rising vessel demand, and opportunities in renewables.
Marco Polo Marine (Ticker: MPM SP)
Key Highlights
- Marco Polo Marine is well-positioned to benefit from rising charter rates in the offshore marine sector for 2025 and beyond.
- The company’s vessels also stand to gain from the increasing activity in offshore wind energy, with 2025 expected to see the highest vessel activity levels ever, according to Fearnley Offshore.
Financial Metrics
The stock is trading at S\$0.055, with a target price of S\$0.072, representing a 30.9% upside. It boasts a robust financial outlook with PE multiples of 9.5x for 2024 and 7.2x for 2025, alongside a dividend yield of 3.6% in 2025.
Recommendation
UOB Kay Hian assigns a BUY rating for Marco Polo Marine, citing its exposure to favorable charter rates and strong growth prospects in the renewables sector.
Keppel Corporation (Ticker: KEP SP)
Key Highlights
- Keppel is focused on selling its 13 legacy rigs and utilizing approximately S\$840 million in cash from asset sales.
- The company’s medium-term valuation is underpinned by its data center and Bifrost assets, while its infrastructure segment benefits from locked-in generation capacity in Singapore for three or more years.
Financial Metrics
The stock has a target price of S\$9.25, reflecting a 36.4% upside from its current price of S\$6.78. Revenue for 2024 is projected at S\$6.792 billion, with a profit forecast of S\$905 million.
Recommendation
Keppel is rated a BUY, with the expectation of strong earnings from its infrastructure segment and potential special dividends.
Sembcorp Industries (Ticker: SCI SP)
Key Highlights
- Sembcorp Industries is leveraging its renewables capacity growth while maintaining stable earnings from conventional energy.
- The company is expected to reiterate its 2023 Investor Day targets for renewable energy growth and increased dividends during its 2025 guidance updates.
Financial Metrics
The stock has a target price of S\$7.20, implying a 29.1% upside from its current price of S\$5.58. Revenue for 2024 is projected at S\$6.919 billion, with a profit forecast of S\$1.005 billion.
Recommendation
Sembcorp Industries is rated a BUY, supported by its strong renewables strategy and stable conventional energy earnings.
Yangzijiang Shipbuilding (Ticker: YZJSGD SP)
Key Highlights
- Yangzijiang Shipbuilding boasts strong earnings visibility extending into 2029 due to its robust order book.
- The company is expected to expand its shipbuilding margins and secure higher order win expectations for 2025.
Financial Metrics
The stock is trading at S\$3.05, with a target price of S\$3.60, reflecting an 18% upside. Revenue for 2024 is projected at Rmb 27.309 billion, with a profit forecast of Rmb 6.430 billion. Its PE multiple of 9.7x is 1SD above its 10-year average of 6.9x, reflecting its strong market position.
Recommendation
Yangzijiang Shipbuilding is rated a BUY, driven by its efficient operations, strong customer base, and earnings predictability.
Risks to the Sector
Potential risks include delays in project sanctioning due to supply chain issues, lack of financing for fossil fuel-related industries, and the potential for a global recession that could reduce oil prices and capex spending.