SINGAPORE'S offshore and marine sector is in structural decline, and the business models of Singapore shipyards will be facing "immense pressure" in the next five years, said Macquarie Research.
The sector is now facing a "triple whammy" with no rig orders, low-quality non-rig orders, and customer delays and lack of payment. These, in Macquarie's view, are leading to a structural decline in returns and balance sheets.
Furthermore, some 70 per cent of Sembcorp Marine and Keppel's current US$8 billion to US$10 billion order book is at high cancellation risk, said Macquarie. Both companies, therefore, cannot be valued at more than their book value now.
The brokerage has downgraded Keppel, SembMarine and Sembcorp Industries to "underperform". It has a target price of S$5.30 on Keppel, S$1.30 for SembMarine and S$2.60 for Sembcorp Industries.