SINGAPORE – The rising tensions in the Middle East which portend higher oil prices could provide an uplift to offshore and marine sector companies listed in Singapore.
Stocks like Seatrium, Marco Polo Marine, Dyna-Mac, Mermaid Maritime, Kim Heng, Pacific Radiance, Beng Kuang Marine and others that specialise in offshore energy-related activity could be boosted by rising oil prices resulting from the conflict in the Middle East.
With Israel launching concerted attacks on the Hezbollah group in southern Lebanon and the Houthis in Yemen over the past few days, there is widespread concern that energy supply chains originating from the region could be disrupted.
Maybank Securities’ head of research Thilan Wickramasinghe sees rising investor sentiment for oil with all the uncertainties ratcheting up in the Middle East.
“As the same time, we also see China’s fresh stimulus measures potentially raising demand expectations too,” he said.
“These should be positive catalysts for Singapore’s oil and gas sector, especially Marco Polo Marine and Beng Kuang Marine, which are seeing strong order book growth and rising margins.”
Maybank Securities has price targets of eight cents for Marco Polo and 29 cents for Beng Kuang. Marco Polo closed at 5.5 cents on Sept 30, while Beng Kuang ended at 27 cents.
Another stock that has been on an upward trajectory is Seatrium. The counter has risen some 22 per cent through September, gaining another two cents to $1.76 on Sept 30.
Mermaid, Beng Kuang, Pacific Radiance and Kim Heng were up between 2 per cent and 6 per cent in the first trading session of the week on Sept 30.
Analysts note that many of these companies have seen their order books strengthen over the past 12 months. Meanwhile, day rates and utilisation rates for oil rigs and offshore support vessels have also risen on the back of rising demand for support services from global energy majors.
Beyond oil prices, these offshore and marine players are also expected to benefit from declining interest rates. This is because many of these companies fund their project costs with borrowing, before being paid on delivery.
The improving outlook has also catalysed corporate activity within the sector.
South Korean-controlled Hanwha Ocean recently made a voluntary conditional cash offer for Dyna-Mac at 60 cents per share, while Atlantic Navigation announced the sale of almost its entire fleet of offshore supply vessels and barges to MAG Offshore Investment for US$183 million (S$234 million).
Atlantic intends to distribute some US$120 million of the sale proceeds to shareholders in cash and shares, which works out to almost 30 cents a share.
Although the stocks of most of these companies have yet to chalk up a noticeable rally, analysts say that they could react to geopolitical developments in the next few weeks.
“Tension is definitely rising and there are several scenarios, and it could involve multiple countries and allies,” said OCBC Investment Research head Carmen Lee.
“However, oil seems to be holding well… so investors are watching this space very closely, but not pricing in higher oil prices yet.”