WTI crude has advanced nearly 15% since the start of 2019 as OPEC and its allies began cutting production to ease worries over a supply glut, and the US government slapped sanctions on Venezuela’s state-owned oil firm PdVSA.
In the YTD, Singapore’s three biggest shipyard stocks have averaged a total return of +6.2%, bringing their 1Y and 3Y total returns to -24.1% and +41.3% respectively. In comparison, the benchmark STI has registered a total return of +4.4% in the same period.
Following crude’s rally, these three largest shipyard plays are now trading marginally above par value at an average P/B ratio of 1.2x. Their share prices have also recovered in tandem with higher oil prices – rebounding an average 27% from their 52W lows.
SGX lists a total of 12 shipyard stocks, which are classified under the Industrials Sector. Among these, the three largest operators are Keppel Corp, Yangzijiang Shipbuilding, and Sembcorp Marine. They have a combined market capitalisation of nearly S$20 billion.
iEdge SG MOE Index
Shipyard stocks are well-represented in SGX’s iEdge SG MOE Index – a free-float, market capitalisation-weighted index that measures the performance of listed maritime and offshore (MOE) companies in Singapore.
The Index comprises 13 constituents, which have a combined market capitalisation of nearly S$30 billion. Constituents of the Index include shipyard operators, shipping companies and companies providing offshore services. Yangzijiang Shipbuilding has the second highest weighting in the Index, at 6.94%, while Sembcorp Marine has a weighting of 5.16%, followed by Keppel Corp with 5.10%.
Crude Price Rally
Over the past few years, Singapore’s offshore and marine industry has been battered by a slump in oil prices, cutbacks in exploration and production (E&P) spending, weak charter rates and delayed projects. This has forced a number of players to cut costs and restructure debt.
Offshore and marine stocks, including shipyard operators, are seen as a proxy to higher crude prices. WTI crude has advanced nearly 15% since the start of 2019 as the Organization of Petroleum Exporting Countries (OPEC) and its allies began cutting production to ease worries over a supply glut, and after the US government slapped sanctions on Venezuela’s state-owned oil firm PdVSA earlier this week. However, analysts expect price volatility to continue, due to ongoing trade tensions and concerns over China’s slowing economic growth.
Prices, Valuations Rebound
In the 2019 year-to-date, Singapore’s three biggest shipyard stocks – Keppel Corp, Yangzijiang Shipbuilding and Sembcorp Marine – have averaged a total return of +6.2%, bringing their one-year and three-year total returns to -24.1% and +41.3% respectively. In comparison, the benchmark Straits Times Index has registered a total return of +4.4% in the YTD.
The table below details SGX’s three largest shipyard operators, sorted by YTD total returns.
| Name | SGX Code |
Market Cap (S$ mln) |
Total Return YTD (%) |
Total Return 1Y (%) |
Total Return 3Y (%) |
P/B (x) |
P/B 5Y Avg (x) |
ROE (%) |
|---|---|---|---|---|---|---|---|---|
| YANGZIJIANG SHIPBUILDING | BS6 | 5,366.2 | 8.0 | -11.5 | 64.8 | 1.0 | 0.9 | 11.6 |
| SEMBCORP MARINE | S51 | 3,425.3 | 5.8 | -35.8 | 13.4 | 1.5 | 1.7 | -4.7 |
| KEPPEL CORP | BN4 | 11,110.0 | 4.9 | -24.9 | 45.6 | 1.0 | 1.1 | 8.3 |
| Average | 6.2 | -24.1 | 41.3 | 1.2 | 1.2 | 5.1 |
Source: Bloomberg & StockFacts (data as of 25 January 2019)
Following the rally in crude prices, SGX’s three largest shipyard stocks are now trading marginally above par value at an average price-to-book (P/B) ratio of 1.2x. In particular, Keppel Corp and Yangzijiang Shipbuilding are trading at 1.0x, compared with their five-year P/B averages of 1.1x and 0.9x respectively, while Sembcorp Marine is trading at 1.5x, compared with its five-year P/B average of 1.7x.
The share prices of the three largest shipyard operators have also recovered in tandem with higher oil prices – rebounding an average of 26.5% from their 52-week lows. Keppel Corp and Sembcorp Marine have recovered 9.3% and 9.4% respectively from their 12-month troughs, while Yangzijiang Shipbuilding has registered a 60.7% price gain from its 52-week low.
The table below details the 52-week low prices, dates and percentage changes from current price levels of the three largest shipyard operators, sorted by market capitalisation.
| Name | SGX Code |
Market Cap (S$ mln) |
Last Price S$ |
Price Chg vs 52W Low (%) |
52W Low S$ |
52W Low Date |
|---|---|---|---|---|---|---|
| KEPPEL CORP | BN4 | 11,110.0 | 6.20 | 9.3 | 5.67 | 26-Dec-18 |
| YANGZIJIANG SHIPBUILDING | BS6 | 5,366.2 | 1.35 | 60.7 | 0.84 | 18-Jul-18 |
| SEMBCORP MARINE | S51 | 3,425.3 | 1.63 | 9.4 | 1.49 | 26-Dec-18 |
| Average | 26.5 |
Source: Bloomberg & StockFacts (data as of 25 January 2019)
P/B ratios are one of the valuation metrics used to value the MOE Sector, especially when earnings may be depressed or negative, which could result in abnormal or unavailable price-to-earnings (P/E) ratios. Aside from analysts’ expectations and earnings estimates, investors should also look out for other key indicators for the sector, such as order book momentum, positive operating cash flows, and balance sheet strength.
Gradual Sector Recovery
Analysts have noted that although the worst appears to be over for Singapore shipyards, the industry recovery remains protracted.
“The overall conventional shipping market is expected to remain on a recovery path, albeit gradual. Global order book-to-fleet ratio has dropped to a low of less than 10%, implying moderating new supply going forward,” DBS Research noted in a sector strategy report published on 26 November 2018.
On the scrapping side, the new Ballast Water Management Convention rule with its two-year gestation period – which took effect in September 2017 – should continue to drive demolition of old vessels, but demand growth will still remain slow, given lower global economic growth and continuing trade tensions, the bank said in the report.
“Against this backdrop, we expect shipbuilding consolidation to continue, and the market to improve with a moderate uptick in orders,” the report added.
