It's been awhile since any changes to my investment portfolio, except that lately, I splashed out some monies into:
1) Bitcoin (BTC)
Refer to my post last month, here.
At current pricing, I continue to put my belief in BTC's upside.
I started accumulating at US$3-4K, although now its US$5K+, it is still 400% down from its high of US$20K
2) Raffles Medical
A stock I owned for many years. Pricing had dived 50% since 2015, despite little changes in fundamentals, except that a huge part of the cash is dashed out to invest in new hospital in China and expansion of hospital in Singapore. Thereby, also incurred borrowings in the hospital growth which is essential for growth in my opinion.
Refer here for my past posts on Raffles Medical.
Monday, 29 April 2019
Sunday, 14 April 2019
The Maritime and Offshore exhibition Sea Asia took place in MBS this week and I was there. It is my 17th year in the industry. I met many old pals, although the number of them still active in the industry has significantly declined. Had many chats and below are some of the key takeaways?
The big question: "Has Marine and Offshore Industry Recovered?"
Still at Bottom!
I am not too sure if the industry is recovering? But one thing I am certain is “we are still at the bottom of the cycle”. Obviously when you hit rock bottom, the only way next is up! That said, it is unlikely that we will be anywhere near the glorious days for the foreseeable future.
The sentiments from the show is definitely not that rosy in my opinion. News of recent retrenchments and pay cuts are not unheard, and it is very difficult to find new jobs. SMEs who survived and still enduring the ordeal, are very cautious with cost overheads. Most are also striving to diversified into other sectors.
Many companies which failed to do so, are either liquidated or in process of liquidation. So what if they have decades of solid track records to speak of? Those once glorious local listed O&M companies with hundreds of millions/billions market cap are now languished with hundreds of millions of debts. Many had already filed for administrations or had their shares suspended. The rest are kept afloat because creditors have not much options but to provide more time.
I also met quite a handful of retirees who still want to have a sniff of the industry. On the other hand, I did see some old guards back into the industry again either being employed or acting as consultant. This is good news.
Big companies are either struggling or some sees opportunity. Either they continue to cut overheads or they merged. Norway’s Kongsberg Group completed acquisition of Rolls Royce Commercial Marine, one of the big names in the industry, for 500millions GBP this month. I have friends in both Kongsberg and Rolls Royce and I am sure they will face uncertainty as mergers always create redundancy due to positions overlapped. MacGregor also announced acquisition of O&M business of TTS Group but completion of acquisition has further delayed due to regulatory approvals from competition authorities.
Oil production sector is still good
On the other hand, upstream oil such as production side of the business is definitely doing much better. Floating Production Units (FPU) which comprised of FPSO, FSO, FLNG etc. are vessels for producing/processing, storing and offloading oil and gas to tankers. FPSO vessels are often in billions of dollars and chartered over 20 to 30 years.
Many FPSO projects were planned in the pipelines with Brazil Petrobras having the most announced. One FPSO contractor with a huge setup in S’pore is Japanese operator Modec being extremely busy flooded with many projects. Other FPSO contractors are BW Offshore, SBM, Yinson, MISC, Bumi etc. Sembmarine and Keppel are basically the shipyards capable to convert or build the FPSOs. Both companies have FPSO orderbooks and are definitely eyeing for more ahead.
Rigs, OSV & Offshore Construction sectors still very battered
During the good old days, the sectors that propelled the market to a boom in SG are from Rigs, OSV & Offshore Construction (OC) sectors. E.g. Rigs are Keppel, Sembmarine, Ezion, Falcon, Baker etc; OSVs are Nam Cheong, Pacific Radiance, Swissco, Marco Polo, Vallianz etc; Offshore Construction companies were Swiber and Ezra in which both filed for administrations.
To understand more about the different sectors within O&G, please refer to my blog in March 2014 here.
These sectors are definitely still very much battered with huge oversupply. While there are few Drill rig orders lately, buyers dictates the margin and terms. Furthermore, contracts are often on the basis that Sellers have to finance a big part of the sale for the Buyers.
OSVs are without questions the worst of the lot with huge oversupply. Many vessels are still lying unfinished mostly in Chinese shipyards. Charter rates of OSV in most cases cannot even cover basic cost. Companies who are still with decent jobs are normally those with country’s protection or special relationships. Vallianz is one of them which is still busy with jobs thanks to their Saudi owner. Most of their vessels are operating in the Middle East region serving Saudi Aramco. Then there are companies with vessels serving Indonesia market which is with local content. But even so with jobs, margins are battered because supply exceeds demand.
Other sectors within the Offshore & Marine
Many O&M companies also look to diversify into sectors independent of oil and gas or with projects related to technologies or “environmental friendly”.
For instance, port developments will require Dredgers, Tugs and Barges. Keppel announced recently that they received grants from MPA for the development of an autonomous tug. And I also heard from friends that this is the sector where they still managed to sell. However, the value of tug boats are very small compared to OSVs or Rigs or OC.
The Dredging vessels are bigger in value compared to tugs and barges. This sector however is very niched and dominated by few companies, which essentially meant that new players often had to pay school fees of learning. Keppel has already forayed into this sector with few wins since 1-2 years back. Many other companies also want to have a bite of the pie.
Renewables sectors such as Wind especially in Taiwan and LNG sectors are also generating a lot of interests. But bearing in mind that these sectors are more niched and also many players are swarming in with limited projects to satisfy everyone. Renewable sectors are also dependent on Government regulations and hence progress will always be very much slower. Thus driving out many smaller players who are not financially strong to wait so long for a project confirmation.
The world also see a rise in internet data. And the most efficient way of data transmission is laying of submarine fibre optics cables. Therefore Cablelay of Fibre Optics is definitely a viable business looking forward. Again these are sectors with lesser and niched players and volume of business is also not as big as Rigs and OSVs during the heydays.
The O&M industry is at its rock bottom. It was the worst ever three years since the Oil downturn.
Oil price is still unstable. Last year, oil price was mostly above $60 and everyone started to be more positive until in Dec when it tumbled below $50 spoiling all good sentiments. Hence, banks are still cautious in lending or totally not lending at all. When financing is tight, not many companies can afford to invest in new projects using self-funding. The lack of investments spiralled down the value chain which explains why the industry is still in distress.
Nonetheless it is not gloom and doom. Many reckon that the worst of the downturn is behind us in upstream oil and gas. The pro-longed downturn cannot go on forever and upstream oil and gas still need to invest, and banks still need to lend. Companies or workers who are still in the industry today are likely to represent those who are more resilient forming the backbone of the sector. If oil price stables or steadily increases this year, I am sure confidence will rise and activities will increase. Besides, we already seen many projects sanctioned in the FPSO sectors.
For me, I am in a strangely positive situation where we still see growth in the sectors we operate in. Perhaps it is due to the niche in our product offerings and our core business is not all oil and gas related. I thank God for that and really hope that the industry will recover soon. My prayers extend to all those who suffered within the industry.