Shipbuilders’ stocks to languish as new orders vanish in 2015

Existing orders are likely to be sold at a bargain.

A bleak outlook awaits investors who have poured cash into local rigbuilders’ stocks. A deteriorating offshore market will cause drillers to defer their orders, which will negatively impact the country’s shipbuilders.

According to Maybank Kim Eng, big shipbuilders such as Keppel and Sembcorp Marine rely heavily on backlog momentum to keep their stock price afloat. While the long-term outlook remains positive for these rigbuilders, their stocks are likely to languish as order misses increase in 2015.

“Apart from new-order risks, existing orders with options may lapse or be re-negotiated at lower prices. Orders for production assets are insufficient to replace rig orders. Stronger orders for production assets may be insufficient to trigger a re-rating, in our view,” noted Maybank Kim Eng.

Here’s more from Maybank Kim Eng:

We estimate there could be 35 — 15% of 233 — new projects that would require production systems to advance to the EPC stage in the next 18 months.

Potential contract values for Singapore yards could amount to USD3.7b, or 42-51% of the total SGD9-11b (including rig orders) the market is expecting for FY15E.

Jackups vulnerable. Jackups for deliveries in 2014-16 account for 21% of the current fleet. Their rates have been holding up better than floaters’.

Recent fixtures were USD130,000–178,000/day. But 86% of the 122 jackups to be delivered have yet to be contracted. This is greater than the 48% for floaters. A potential mitigation is, about 40% is speculative/China builds, which may not be delivered or contracted. Even if the jackup market does not meet the same fate as floaters, rig owners may restrain from ordering, until a clearer industry picture emerges.