3 reasons why marine sector won't be badly hurt by DRC cut

Worker ratio is trimmed to 1:3.5.

According to OCBC, in a bid to urge companies to further reduce their reliance on foreign workers, the government will reduce overall Dependency Ratio Ceilings (DRCs) in the marine sector. 

An employer in the marine industry is currently allowed to hire five Work Permit holders for every full-time local employee, but this ratio will decrease from 1:5 to 1:3.5.

These developments will provide clear incentives for businesses to restructure and upgrade their operations.

Shipyards, which generally utilize a sizeable portion of foreign workers, (e.g. about 40-45% for Keppel Corp and Sembcorp Marine) will be motivated to increase investments in solutions to increase productivity.

Here's more from OCBC:

Though there may be increased costs in the short run, it is unlikely to have a negative impact on stocks as: 1) the reduction in DRCs will take place in two stages – by Jan 2016 and Jan 2018, giving companies time to prepare for the changes;

2) this is a well-flagged issue and yards such as Keppel Corporation and Sembcorp Marine have already embarked on productivity initiatives; regional yards are also being upgraded so that more work can be outsourced to them;

and 3) the bulk of the construction costs of a rig or high-end vessel (which local yards produce) comprise equipment and material costs rather than labour costs.

As for ASL Marine, most of the labour intensive work is done in its Batam shipyard. Meanwhile, we note that the increase in levies would be only for unskilled workers – firms that employed skilled workers would not be affected.