KUALA LUMPUR: Malaysian offshore support vessel (OSV) providers are expected to see a conservative six per cent year-on-year increase in their average daily charter rates in financial year 2025, on account of the tight supply of OSVs.
Kenanga research in a note today maintained its bullish outlook on the local OSV market, attaching an "Overweight" call.
Its top picks for the sector are Dialog Group Bhd, Yinson Holdings Bhd and Keyfield International Bhd.
"Given the potential for continued ramp-up in demand from Petronas and a stable fleet size year-on-year, there remains substantial room for upward adjustments in daily charter rate, which could lead to increased FY25 earnings projections for our OSV counters."
"Additionally, we have not yet factored in any potential fleet expansions within our coverage. Should future announcements include vessel additions, this could further elevate our earnings forecasts," it added.
Kenanga said despite robust local OSV daily charter rates, particularly for accommodation work barges, it does not believe the OSV market cycle has peaked.
This is due to the lack of significant capacity expansion announcements from local OSV players, even amid a tightly supplied market.
"With Petronas ramping upstream capital expenditure, we anticipate an even tighter local OSV supply extending beyond 2024 into 2025. To encourage fleet renewal or expansion, Petronas might need to offer longer-term contracts (at least three years) at rates slightly below current spot market levels. Without such incentives, or unless spot market rates rise further beyond 2024 levels, we may not see significant fleet expansion in the Malaysian OSV market, despite growing demand from Petronas in the upcoming years," the research firm said.
Kenanga research said Petronas requires a minimum of 200 vessels for support to sustain its production levels.
With the expected increase in demand from Petronas, this number could rise to 300 vessels operating in Malaysian waters in 2024 and onwards.
"However, the current fleet under the Malaysia OSV Owners Association (MOSVA) totals only 270 vessels, and it's unclear how many of these are currently cold-stacked and potentially not viable for service return. This situation points to a significant shortfall in available OSV capacity, underscoring the tightness of the market and the potential for upward pressure on charter rates," Kenanga research said.
It said the economics for newly built vessels have improved significantly due to the huge uptick in daily charter rates and coupled with 2024-2025 demand outlook from Petronas.
"Banks are starting to warm up to the idea of financing vessels again after a lull in the last decade. This provides flexibility for existing OSV players as they will be able to secure more financing to renew and potentially expand their OSV fleet to better capitalise on theongoing up-cycle in the local OSV market," Kenanga research said.
The firm said since the peak of the cycle in 2014, many local OSV owners have been in survival mode, primarily due to a drop in daily charter rates driven by declining Brent crude prices.
"Since 2014, local OSV operators haveminimized spending on fleet renewals and expansions, keeping the overall Malaysian fleet size similar to what it wasnearly a decade ago. This restraint in investment reflects the sector's response to volatile oil prices and lower charter rates," it said.