Tough times ahead for Singapore’s shipyards

Due to a combination of unfavourable circumstances at home and abroad, Singapore’s shipyards are looking down the barrel of a profit slowdown that could last for as long as five years, UOB Kay Hain has warned.

It is widely expected that there will be close to zero new-build rig orders until around 2020; coupled with a dismal outlook for the floating production services (FPS) market, it is looking as though shipyards will suffer.

Due to the oil price slump, balance sheets will be stressed and yards will scrape by through sheer skill and managing overheads. UOB Kay Hian noted that all this will change if oil prices spike significantly above US$60/bbl.

The report championed Keppel over Sembcorp Marine (SMM) to investors that still want to brave the space—Keppel can lean on property, infrastructure, and investment in order to weather the storm.

SMM’s earnings are wavering as its business lacks the diversity of other players in the space - its rig-building and conversion orderbook is thinning.

The report stated: “While gearing remains elevated for both yards, the influx of cash as they deliver on projects should bring it to bearable levels. It is difficult to conclude if those levels are comfortable gearing levels for the long winter.” 

Read the August issue of Business Review Australia & Asia.

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