UOB Kay Hian (UOBKH) has retained its "overweight" call on Singapore's offshore and marine (O&M) sector as it believes the rig market "turned a corner" in 2021, with higher offshore activity expected in the years ahead.

This is due to oil prices having shot past US$80 a barrel last year, and further projects with demand for production assets appearing to have "meaningful upsides in the next few years", said the research team in a report on Friday (Jan 14).

Noting that offshore oil utilisation now exceeds pre-Covid-19 highs, UOBKH expects this to result in firmer day rates, which would incentivise rig owners to place new orders.

"Already we have seen firmer rig day rates on a year-on-year basis. We also note that particular regions like Brazil saw utilisation rates exceed 90 per cent in 2021," said the research team.

The team cited independent energy research company Rystad Energy's prediction that offshore investments in 2022 are set to increase by 7 per cent year on year, from US$145 billion to US$155 billion.

"In addition, we highlight that the US$150 billion of greenfield projects sanctioned in 2021 will likely be repeated in 2022, thus underlining the positive outlook for the offshore marine sector in the short to medium term," it said.

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UOBKH views ongoing supply destruction as positive for the industry as it believes the extraction of excess supply should allow utilisation and day rates to firm up.

"Should activity in the oil-and-gas industry strengthen in 2022 and 2023, we could see a cyclical upturn start in the near term," the research house added, underscoring the possibility of a revival in the offshore marine industry.

However, the team cautions that this positive outlook hinges on whether future Covid-19 variants will be less lethal, and whether governments can view the virus as endemic.

Top sector "buy" picks include mainboard-listed Yangzijiang Shipbuilding for possible margin expansions in the coming quarters, as well as Singapore conglomerate Keppel Corporation for potential positive news regarding the merger and divestment of its O&M business unit.

Singapore's largest offshore marine company Sembcorp Marine (Sembmarine) also received UOBKH's nod following its S$1.5 billion rights issue in 2021, as the brokerage notes that its risk-reward appears "skewed to the upside". It also sees Sembmarine as a beneficiary of the upcoming upcycle, as it is Singapore's largest O&M company.