Hopes fade for offshore and marine sector to recover in 2013

Low-ball offer for shares of STX OSV suggests worse to come.

Since its bottom in 2010, commentary regarding offshore support vessel (OSV) prospects has always been somewhat of a mixed bag. CIMB notes that the narration from industry watchers has ranged from a still-difficult/challenging/mixed market afflicted by overtonnage to one of optimism, where requirements of higher-end tonnage and deeper water E&P activities should buoy the industry.

According to CIMB, the recent offer by Italian cruise shipbuilder Fincantieri for 50.75% of STX OSV at S$1.22/share or 6.5x CY13 P/E and 2.2x CY12 P/BV provides food for thought. "The low-ball offer suggests that prospects for the OSV sector may not be strong as thought. That said, the urgency by the STX group to restructure its balance sheet and the strong bargaining power which Fincantieri is in, given that there is no competing bid, could also have contributed to the low sale price."

Here's more from CIMB:

In our view, the global OSV sector has clearly emerged from the bottom. However, its recovery hit a snag in 2012, after 2-3 years of steady improvements. With global OSV utilisation hovering at the mid-toupper 80% levels and dayrates some 50% off peak, we think that the OSV segment is in a mid-cycle. Looking further, we disagree that the OSV market has peaked and expect a resumption of OSV recovery in 2013, alongside increased rig activity.

Outlook & trends
In terms of asset classes, we are most bullish on high-end Anchor Handling Tug Supply vessels (AHTS). In particular, the ultra-large AHTS fleet has been flat over the previous two years. We expect charter rates and a newbuild cycle for ultra-large AHTS to pick up in 2013.
We are also positive on the subsea market, despite strong newbuild activity in 2012. Subsea players are writing record-order books while tendering activity remains high. Hot spots are Brazil, the North Sea, West & East Africa and Australia.

We are cautious of Platform Supply Vessels (PSVs), especially the higher-end segment. Although the PSV market is the segment which we expect the strongest demand, we are also seeing the highest order book.

Stocks best poised to ride out the mid-cycle
Going into 2013, companies which have an exposure to high-end AHTS or deepwater subsea are the main beneficiaries. Among our coverage, Ezra, Jaya and STX OSV are riding the correct trends. Lastly, we also like Ezion, albeit for different reasons.