The profits are sinking: How Singapore's shipping firms amazingly disappointed everyone

Sembcorp's ship repair revenue stagnated.

The boat is sinking for Singapore's O&M sector, and grouping together could not save any of the firms. With Sembcorp suffering a stagnation in ship repair revenue and Swiber almost veering towards big-time losses, it may be difficult for them to cut loose from the anchors pulling their profits down.

According to Maybank Kim Eng, the core 1Q14 performance for the Singapore O&M sector was uninspiring. Of the 10 companies under coverage, only Yangzijiang outperformed but it was due to non-core contributions.

Here's more from Maybank Kim Eng:

We see rising short-term headwinds for the industry. Margin pressure was a key focal point. On a positive note, almost all companies concurred that the long-term fundamentals for the oil and gas industry remain sound. 

Swiber and SMM delivered the greatest disappointment in 1Q14. If not for the USD95.1m disposal gain of a subsidiary, Swiber would have been in the red.

Meanwhile, SMM’s high-margin ship repair revenue stagnated and failed to ramp up as expected, prompting us to downgrade the stock to a HOLD. We subsequently also downgraded Keppel to a HOLD as we see weaker order win momentum in the next 6-12 months.

Near-term challenges are rising for companies exposed to upstream capex spending due to: (1) oil companies’ budget cuts in 2014, (2) softening in dayrates for deepwater floaters, (3) intensifying competition, and (4) higher costs for the industry. Our optimism has mellowed from a quarter ago, when we were more positive on order win momentum.

While we are confident that long-term fundamentals remain intact, we believe certain segments of the industry (eg, rig-building) will experience a temporary pause.

However, we stay positive on the OSV market, and the beneficiaries Vard and Nam Cheong. We also like Ezion and Mermaid given their niches and are relatively more immune to macro issues plaguing the industry.