UOB Kay Hian's Adrian Loh has kept his "overweight" call on the offshore and marine sector, as oil prices, which underpins this sector, is seen to remain relatively high this coming year.
Specifically, he has "buy" calls on three stocks within this sector: Seatrium, Yangzijiang Shipbuilding and Marco Polo Marine 5LY .
"We retain our belief that oil prices will comfortably trade between US$85-95 per barrel in 2024," says Loh in his Dec 8 note.
"Despite weaker macro market sentiment and risks to oil demand next year, we point out that OPEC+ is still supportive of its production cuts," says Loh, noting that the cartel made three successive cuts in 2023 to maintain a relatively high oil price.
"In addition, the spectre of geopolitical risk remains, and a Brent oil price of US$68/bbl for delivery in Dec 28 should see oil companies continue to spend on offshore capex," he adds.
For Seatrium, the company's management had indicated it is unlikely to see the return of a "super cycle" in orders for oil rigs.
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However, Loh sees upside potential for its order pipeline, especially for so-called "energy transition" projects, building the likes of wind turbine installation vessels and the likes for its "blue-chip" client base.
Loh's target price of 19 cents for the stock is pegged to 1.5x of the book value of 12.5 cents per share. "Our positive view on the stock reflects our belief that the company will benefit from bullish trends in the offshore marine space."
For Yangzijiang Shipbuilding, Loh sees an "intact" and "solid outlook", given the strong order win momentum that included US$770 million in 3QFY2023 ended Sept alone, bringing the total thus far to US$14.7 billion.
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This brings the year-to-date order book to US$6.54 billion and is "well ahead" of the "admittedly conservative" guidance of US$3 billion, way below Loh's projection of US$7 billion.
The target price of $1.92 is based on an earnings multip[le of 9.9x and is 1.5sd above the five-year average of 6.6x.
Last, but not least, Marco Polo Marine is seen to enjoy higher utilisation and charter rates for its fleet of support vessels, as well as stronger earnings from its expanded yards.
In a sign of confidence, the company has recently announced its first dividend of 0.1 cents since 2012 - before the down cycle.
UOB Kay Hian recently raised its target price for Marco Polo Marine by 10% to 6.6 cents, which is pegged to 1.3x FY2024 book value.
