Oil price rout hits O&M firms in Q1

Singapore

IT'S hard out there for an offshore and marine (O&M) firm, going by the bloodletting on display at the end of the first full financial quarter that has elapsed ever since Brent crude prices fell below US$80 per barrel in November 2014.

Offshore support vessel (OSV) builder Nam Cheong posted lower-than-expected earnings on Thursday, prompting a downgrade from some analysts, while offshore engineering firm Swiber sank into the red.

OSV owner Otto Marine, which warned on Sunday that it is headed for a net loss in Q1, posted a narrower loss.

Nam Cheong, which is the biggest OSV shipbuilder in Malaysia, saw net profit for the first quarter dive 45 per cent to RM39.3 million (S$14.5 million) from the previous year. As a result, group earnings per share fell to 1.87 sen for Q1, down from 3.38 sen the previous year.

Revenue for the three months ended March 31 also fell 20 per cent to RM326.25 million in the same period, which the group said was mainly because its shipbuilding arm delivered fewer vessels in Q1 this year compared with last year.

Nam Cheong told a results briefing on Thursday at the Fullerton hotel that it has clinched two orders worth about US$58 million altogether since the start of 2015 - the lowest number of contract wins since it bagged just four in financial year 2009 during the depths of the financial crisis.

Despite the sales slowdown, chief executive officer Leong Seng Keat said that since Nam Cheong was asset-light, it does not need to carry out any "major cost reduction".

Net asset value per share grew to 63 sen as at March 31, from 58.2 sen as at Dec 31.

OCBC Investment Research said in a note on Thursday that it has downgraded Nam Cheong to "sell" with a fair value of S$0.27, noting that shipbuilding margins may be "at the lower range of 15-20 per cent for the rest of the year".

Nam Cheong aside, other offshore players that posted first-quarter results on Thursday did not manage to stay in the black.

Offshore engineering firm Swiber Holdings, which has been aggressively bidding for contracts, posted a net loss of US$1.26 million for its Q1 ended March 31 - a sharp reversal from the US$48.02 million it earned the previous year when it registered a disposal gain of US$95.1 million.

Revenue for the three months slipped 17.3 per cent to US$164.91 million, which Swiber said was because it had executed fewer contracts. But gross profit margin grew to 11.8 per cent in Q1 this year from 4.5 per cent last year, due to "more stringent control" over operating costs.

Deputy group chief executive officer Darren Yeo said that the group was "working hard at maintaining the momentum" of new order wins, and noted that Swiber now has a record pipeline of US$1.8 billion.

Debt repayments could still be a concern for the company, though, since its total borrowings stood at US$1.09 billion as at March 31.

Swiber registered a loss per share of 0.2 US cent for the quarter, down from 7.9 US cents last year. Net asset value per share slid to 61.8 US cents as at March 31, from 90.6 US cents as at Dec 31.

Otto Marine, meanwhile, narrowed Q1 net loss to US$13.2 million, from US$14.4 million a year ago. Revenue rose 91.8 per cent to US$148.1 million. Cost of sales jumped 94 per cent. The results came after Otto put out a profit guidance statement on Sunday saying that it expected to make a net loss due to a drop in charter rates and its fleet utilisation level.

"The persistent challenging market condition, particularly for the oil and gas industry, puts pressure on the group's performance. Against such headwind, the group is stepping up its efforts in securing new contracts while concurrently implementing cost-cutting measures to remain competitive," said Otto.

Nam Cheong shares shed a cent to S$0.315 and Swiber rose 0.3 cent to S$0.189 on Thursday. Otto lost 0.1 cent to end at S$0.031.