SINGAPORE (March 10): UOB Kay Hian says clear survivors to the offshore and marine industry downturn are steadily emerging.
The brokerage is maintaining its “market weight” rating on the sector.
“In our opinion, key to surviving this downturn requires strong cashflow generation and continued de-leveraging,” says UOB lead analyst Foo Zhiwei in a Friday report. “A review of companies’ core margins highlights several candidates that will clearly survive the downturn.”
Based on positive increases in core EBITDA margin and reduction in net gearing, Foo says Dyna-mac Holdings, Mermaid Maritime, and Nordic Group are likely to survive. All three are not rated by UOB.
While Dyna-mac’s low orderbook is a concern, Foo says its core EBITDA margin remains strong at 14.5%. It is also a possible M&A candidate, given its clean balance sheet and low number of major shareholders.
Meanwhile, Mermaid saw the biggest improvement in core EBITDA margin among its peers, according to Foo.
“At a robust 16.0%, and healthy net cash position, Mermaid is well-positioned to capture the likely recovery in subsea and pipelay activity in 2017,” Foo says.
Nordic, too, saw improvement in EBITDA margin as well as core EBIT growth, owing to its diversification strategy into plant maintenance.
“With 2017 being another turnaround year for refineries, Nordic is expected to see improved earnings from its maintenance business in 2017,” says Foo.
In addition, Foo highlights Ezion as the preferred pick for the sector, despite the company posting its worst earnings performance in 2016 due to operational delays.
“The improved oil outlook should help with the success of its redeployment plans,” says Foo. “We are reassured that despite its woes, core EBITDA margin remains at an impressive 60.1%.”
At the same time, Foo is downgrading Triyards to “hold” with a target price of 27 cents owing to a corporate guarantee issue.
As at 4.14pm, Dyna-mac is trading 0.1 cent higher at 18.3 cents, Mermaid Maritime is trading 0.5 cent higher at 21 cents, Nordic is trading 0.5 cent lower at 31.5 cents, Ezion is trading 0.5 cent higer at 36 cents, and Triyards is trading flat at 29.5 cents.
