Offshore & Marine Sector - CIMB Securities 2015-09-18: Growing appetite for liftboats

Offshore & Marine EZION HOLDINGS LIMITED 5ME.SI SWISSCO HOLDINGS LIMITED ADP.SI

Offshore & Marine - Growing appetite for liftboats

TGH is the latest Singapore oil services company to venture into the liftboat subsegment. It has secured a US$50m contract to build a liftboat
The unit is to be built in China. Chinese shipbuilders and owners have recently ventured into the liftboat segment.
Room for more players in ASEAN, with around 10 liftboats servicing 1,717 oil platforms in ASEAN versus 240 units servicing 3,257 platforms in Gulf of Mexico.
Ezion’s know-how in operating liftboats distinguishes it from its competitors.

Technics Oil & Gas (TGH SP, Not Rated) secured a contract worth S$70.5m (US$50m) to construct a liftboat, with the option for another unit (exercisable within six months). The customer is based in Malaysia and the unit is expected to be deployed there. We view the contract win positively, inferring that the liftboat concept that was first conceived in the Gulf of Mexico is gaining traction in the underpenetrated ASEAN market.

The liftboat will be constructed based on TGH’s proprietary TOE 700 design. With its core competency as a specialist in process modules, TGH does not have experience in building liftboats. To mitigate construction risks, TGH will build the liftboat at a third-party yard in China. Chinese shipbuilders have recently made inroads into the liftboat segment, mainly catering to domestic demand. For example, Tianjin Hiaheng Ship Engineering ordered four liftboats from CMHI in Jul.

In our view, the key to successful delivery of the liftboat lies in mastery of the jacking system. Compared to a drilling jack-up rig, a liftboat is subjected to a high level of jacking activities (and at higher speeds). Hence, it is important for the jacking system to be robust.

While more competition appears negative for first-mover Ezion, we are of view that the flourishing liftboat demand in ASEAN will be able to cope with more players. Certainly, Ezion would not be able to cater to all the ASEAN liftboat requirements on its own. There are around 10 liftboats servicing 1,717 oil platforms in ASEAN versus 240 liftboats servicing 3,257 platforms in the Gulf of Mexico.

Although it started as a pure asset owner, Ezion has learned to operate liftboats over the past few years. It now crews its liftboats that are deployed in ASEAN and has invested in a liftboat simulation training centre to get its crew up to speed.
Overall, we remain Neutral on the sector as a lack of catalysts is counterbalanced by cheap valuations. Our top picks are SCI, Ezion and PACRA.

Ezion is one of the first companies to introduce the liftboat concept in Southeast Asia. It also owns of the largest liftboat fleet in this region. The stock trades at 6x CY15 P/E, with estimated 55% core EPS growth in FY16.

With experience in liftboats, Swissco’s management team has ordered its first newbuild in Sep 2014 from Triyards, with option for another. The vessel is expected to be delivered by mid-2016. The stock trades at 0.4x CY15 P/BV versus forward ROE of 13%.

TGH is a full service integrator of compression systems and process modules for the oil and gas industry. It operates strategically-located waterfront yards in Singapore, Vietnam and Batam, Indonesia.

YEO Zhi Bin CIMB Securities | LIM Siew Khee CIMB Securities | http://research.itradecimb.com/ 2015-09-18

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