• For several years, many offshore support vessels were idling, or cold-stacked as the term is used. Those that could be assigned work fetched depressing charter rates. Their owners intensely competed for jobs. Many went through losses, even near-bankruptcy. Many sank.

• Post-pandemic, in 2022 and more so in 2023, the good old days made an unmistakable comeback. That's why S$237-million market cap Marco Polo Marine's adjusted net profit for FY23 (ended Sept 23) shot up ~80% year-on-year to S$25 million.

Another Singapore listco, Nam Cheong Ltd (market cap: S$64 million), reaped ~RM25 million profit in 1Q2024 (excluding one-offs) from supporting oil majors such as Petronas in their activities in Malaysian waters. As 1Q was monsoon season, the 2Q and 3Q are expected to be even stronger as vessel chartering picks up. 

• Those two companies operate in Southeast Asia and Taiwan.

Over in the Middle East, another Singapore-listco, Atlantic Navigation (market cap: S$188 million) had such a rebound in business its FY 23 (ended Dec 23) profit surged ~70% to US$18.1 million. (See what the CFO said below ...)

AtlanticNavi 6.24Source.

• Demand for OSVs continues to be high -- while supply is low. 

After incurring bad debts in the previous oil & gas slump, there's little appetite among banks to finance newbuilds. ESG reasons also play a part.  Maybe charter rates need to go higher to attract financing for some newbuilds (which will take around 2 years to be completed). 

• Meanwhile, what vessels are out there have advanced in age. Some do not, or will not, meet oil majors' stringent age criteria for work.

At the same time, a new industry -- offshore wind farms -- is emerging and competing for the services of offshore support vessels. 

OSV quote 6.24Source.

Looming also is the big business of decommissioning offshore oil structures, such as in parts of the Gulf of Thailand where production will cease.

Thus, "it is likely that we will see a prolonged cycle due to rising demand, static supply and a challenging market for newbuilding. These factors are shaping up to be an exciting time for the offshore industry,"
 according to an industry article (for more, click here).

• Atlantic Navigation has received scant analyst attention -- until now.

UOB Kay Hian had a report out yesterday (13 June). Read more below ....

Excerpts from UOB Kay Hian report

Atlantic Navigation Holdings (ATL SP)
Unique And Well-Positioned In The Middle East’s Offshore Marine Industry

ATL is a Middle East-focused offshore marine company which saw EBITDA margins recover strongly after COVID-19 on the back of higher charter rates and sustained high utilisation rates.

Earnings growth in 2024 should be underpinned by full-year contributions from newly-acquired vessels as well as the completion of a newbuild vessel in 2Q24.

The demand/supply dynamics in the Middle East’s offshore marine industry appear favourable for the foreseeable future.



• Middle East-focused with 20 vessels and growing.

In 2023, revenue and net profit rose to US$91.0m (+40% yoy) and US$18.1m (+62% yoy) respectively, driven by growth across both its business segments:

a) marine logistics services (MLS) with its fleet of 20 vessels providing ship chartering, technical and chartering project management, and

b) ship repair, fabrication and other marine services (SRM) which has a float and drydock repair and maintenance services with facilities at the Hamriyah Free Zone as well as Dubai Maritime City. See table overleaf for a list of its fleet of vessels.

Margins have recovered with room for some expansion. 1Q24 EBITDA margins expanded further to 42.1% (2023: 37.4%) vs the 20-26% levels seen in 2019-21.

"Management has guided for strong profit growth in 2024-25 on higher day rates as old contracts roll over and new contracts start, and it has sustained high utilisation levels and contribution from new vessels."

The company attributed this to higher vessel charter rates as the Middle East’s offshore marine demand/supply dynamics appear to be very favourable for the foreseeable future, as well as good cost control.

At a recent call with the company, it appeared very confident that EBITDA margin can be maintained at >40% for 2024, helped by higher charter and utilisation rates.

Earnings growth in 2024 will likely be driven by recently-acquired vessels that will fully contribute for the year.
These include:
a) an accommodation workboat acquired in 1Q24,
b) a DP2 platform supply vessel acquired in Apr 23, and
c) a maintenance utility vessel acquired in May 23.

In addition, 2Q24 will see the completion of AOS Glory, a large 6,000bhp DP2 multi-purpose platform supply vessel.

Solid balance sheet with access to financing from Middle East banks. As at end-1Q24, the company had net gearing of 40.7%, a slight increase from 38% at end-23.

We note that ATL has managed to lower its gearing from 57% in 2018 to current levels which should allow it to add another 2-3 vessels for its medium-term growth.

Given its presence in the Middle East, the company has not had issues in accessing financing for its acquisitions.

Outlook. Management has guided for strong profit growth in 2024-25 on higher day rates as old contracts roll over and new contracts start, and it has sustained high utilisation levels and contribution from new vessels.

Industry expectations for oil prices in excess of US$80/bbl levels should underpin this growth.

Nearly 49% of ATL’s 2023 revenue came from Qatar, making it a second derivative play on the world’s fastest LNG exporting nation.

• Key risks to the stock appears to be its low daily trading liquidity, a decline in oil prices which could impact spending in the offshore oil and gas industry, and operational risks.

Full report here.

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