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• The offshore and marine industry is performing well, with high oil prices inspiring significant investment in exploration and production. This in turn creates strong demand for support vessels and rigs. • Many a player in the vessels and rigs space perished during the oil crisis pre-Covid and during the pandemic. That's why survivors are enjoying a business boom as charter rates for their assets climb.  Source. • Survivors (many via debt restructuring) include a variety of companies -- Nam Cheong (support vessels), Beng Kuang Marine (maintenance of FPSOs), Dyna-Mac (production of top modules for FPSOs), Marco Polo Marine (support vessels), etc.FPSO (floating production storage and offloading) vessels -- they process oil from nearby oilfields out at sea, and store it until it can be transferred to a tanker.  • In today's report, UOB Kay Hian gives an update on the bigger names such as Keppel, SembCorp Industries and Yangzijiang Shipbuilding. Read excerpts below... |
Excerpts from UOB KH report
Analyst: Adrian Loh
Offshore Marine – Singapore Industry
| Dynamics Remain Robust – Small/Mid Caps Outperform |
| Despite a small blip in the jack up-rig sector, demand and supply dynamics in the O&M industry continues to tighten, thus cementing the robust utilisation and day rate trends for both rigs as well as offshore vessels. Small/mid-cap O&M stocks in Singapore have done well ytd in stark contrast to STM (Seatrium). Key US oil services companies’ 1H24 results have shown continued strength in international segments, reinforcing our confidence in the sector. Maintain OVERWEIGHT on the sector. |
WHAT’S NEW
• Still a bullish outlook. Over the past three years, the number of active offshore rigs have declined 9-25% as old assets have exited via scrapping, cold-stacked or undergone conversion.
The lower supply, together with higher oil & gas prices and robust demand, has led to higher utilisation and day rates across almost all asset classes - from offshore support vessels to the largest drillships.
Only jack-up day rates have retreated, down 7% from its 2024 peak due to contract cancellation by Saudi Aramco.
| "Overall, most of Singapore's small/mid-cap offshore marine (O&M) names have seen a lift in their share prices ytd vs Seatrium which, while having won a number of key contracts, faces various investigations by local authorities." |
Overall, most of Singapore's small/mid-cap offshore marine (O&M) names have seen a lift in their share prices ytd vs Seatrium which, while having won a number of key contracts, faces various investigations by local authorities.
• Not all about oil. Industry reports indicate that a number of final investment decisions for Southeast Asia's offshore gas projects could see a total of US$100b in capex spending by 2028, particularly in Indonesia and Malaysia where a number of discoveries have been made.
According to Rystad Energy, national oil companies will account for 31% of this capex while oil majors will undertake a 25% share.
Key projects to note include Abadi LNG, Eni's Indonesia Deepwater Development and BP's Tangguh Ubadari Carbon Capture.
These, and other projects, could have positive ramifications on Singapore's O&M sector, in our view.
• Impact of a potential Trump presidency. Former President Trump's stated goal is to boost exploration activity in the US which could be negative for upstream companies over the longer term due to the potential for higher oil supply. However, this could be positive for oil services and offshore marine companies given higher demand for such services and assets, and thus buoy utilisation and day rates.
• Positive read-through from US earnings season. With two of the three major US oilfield services companies (Halliburton and SLB) having reported their 2Q24 results, it was clear that their respective international markets were key growth drivers while North America saw revenue decline and margin compression.
In its 2Q24 briefing, SLB - which beat market expectation - stated that it expects to see "ongoing momentum in the international markets" while Halliburton commented that its international business is "experiencing solid demand and high activity levels".
 Adrian Loh, analystOur conviction levels for STM has moderated due to a lack of transparency from Singaporean authorities regarding continued investigations for its exposure to 2014's Operation Car Wash.In the small/mid-cap space, we like Marco Polo Marine for its earnings growth in 2024 due to higher charter and utilisation rates for its assets. |
Full report here
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• Increasingly, AI capabilities are coming to new models of laptops and smartphones. They can run advanced generative AI applications, supported by powerful neural processing units (NPUs) and GPUs. • For more, see IDC's article: The Future of Next-Gen AI Smartphones • And Gartner predicts Worldwide Shipments of AI PCs and GenAI Smartphones to Total 295 Million Units in 2024 The uptrend is already manifesting in the bottomline of companies such as HK-listed Sunny Optical which issued a profit alert on 21 July 2024:
• For investing exposure to AI-enabled devices (or so-called edge AI), the Hong Kong stock market offers a number of possibilities. See excerpts of UOB KH's report today below .... |
Excerpts from UOB KH report
Analyst: Johnny Yum
| AI Investments To Remain Elevated But Edge AI Plays Are More Attractive |
| We are shifting our preference to edge AI picks, as we see an improved visibility on the recovery in global smartphone and PC shipment in 2H24. With this, coupled with the pick-up in AI device shipment towards year-end and a more undemanding valuation, we expect edge AI plays to outperform the AI infrastructure supply chain, which is now under pressure from profit-taking, and mounting geopolitical risks. Maintain OVERWEIGHT. Top picks: Lenovo and BYDE (BYD Electronic). |
WHAT’S NEW
• AI devices (edge AI) are our preferred play in 2H24. We are seeing better visibility of a recovery in consumer devices, primarily in smartphones and PCs, with growth driven by a combination of replacement demand, and a low base effect.
Shipment numbers for both smartphones and PCs in 2Q24 had surpassed our expectations, and our checks show that the demand recovery will likely be sustainable at a gradual pace in 2H24.
On top of that, although AI-ready devices' demand remains relatively muted, we believe the new launches (such as AI-enabled OS for smartphones) in 2H24 will be able to provide more meaningful boost to growth by end-24, bolstering replacement demand in the upcoming upcycle.
• Smartphones − Apple and Huawei taking the lead in AI features. Thanks to Apple and Huawei's self-owned ecosystems, we believe both brands are ahead of Android in integrating GenAI features into their devices, OS and ecosystems.
| "We are seeing better visibility of a recovery in consumer devices, primarily in smartphones and PCs, with growth driven by a combination of replacement demand, and a low base effect." |
Notably, we believe Huawei has a meaningful edge in integrating its GenAI features into the ecosystem, given the strong support from domestic developers, but nevertheless its reach could remain limited in China given the lack of access to leading edge processors and crucial services such as Google services.
For Android players, we expect key players to catch up to Apple and Huawei, with better ecosystem support and improved applications.
Google's upcoming Pixel 9 Pro launch will be an important benchmark of what Android AI is capable of.
• PCs − Demand recovery playing out; AI PC volume may pick up more meaningfully by 4Q24. We expect the global PC market to maintain a stable low-mid single-digit yoy shipment growth in 2024 from a low base, as enterprises start to replace their devices prior to the Windows update cycle.
AI PC adoption may remain slow in 3Q24, as most potential customers will likely continue to wait for:
| a) more killer app launches, and b) more new PC launches that can support Copilot+ on edge (NPU with >40TOPs). |
We believe with the launch of Intel's Lunar Lake, and better support on the Windows on Arm (WoA) framework, AI PC shipments should start to pick up towards the end of the year.
Full report here.
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• What an exciting future lies ahead with Artificial Intelligence (AI). A future with a higher standard of living for many -- that's the prediction of experts. See McKinsey's article Economic potential of Generative AI: The next productivity frontier. • As GenAI applications become more sophisticated and widespread, the demand for computational power and energy resources is skyrocketing. This surge is driven by the need to process and analyze vast amounts of data, which in turn requires substantial investments in data center infrastructure. • How to invest in this part of the ecosystem? Are there Singapore instruments for that purpose? In an article on the SGX website, an analyst gives his take below .... |
Photo: Keppel DC Reit
By Pranay Yadav, a Senior Research Analyst at Mint Finance, a Singapore based research and consulting firm offering nuanced and deep insights on global macro and its impact on Singapore stocks, REITs, and ETFs.
Q: What has Generative AI got to do with Data Centres?
A: Generative AI (or Gen AI in short) thrives on data. More Gen AI means more data. More data equates to more data centres needed. Each click, each swipe, and each algo leap magnifies the demand for data centres.
Data creation is soaring; More data will be generated in the next five years than over the past 10.
To serve additional demand, data-centre capacity will need to grow at an 18.5% CAGR over the next five years.
AI workloads running servers represent a major demand driver, particularly for data centres with high performance computer offerings such as Hyperscalers.
Q: What is an efficient and a convenient way to invest into Data Centres?
A: Data centre REITs invest in properties including data-storage and server centres.
These serve as backbone to the tech sector. As such, data centre REITs are strategically positioned to benefit from the rapid expansion of the data centre market.
The growth of data centre REITs is driven by five primary forces
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Singapore’s REITs & Property Trusts market is Asia’s second largest behind Japan.
Home to 41 REITs & Property Trusts with a total market capitalization of around S$100 billion, the portfolio of S-REITS are broadly diversified in regions outside Singapore including the Asia Pacific, South Asia, EU, and US.
REITs are inversely correlated to interest rates because they often rely on debt for expansion.
Higher rates result in higher borrowing costs, and elevated cost of funds lowers profitability. Therefore, a potential reversal of interest rates bodes well for REITs.
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Q: How have data centre REITs performed relative to the overall S-REITs market? A: Among Singapore REITs with exposure to data centre properties, only Digital Core REIT (DCRU) and Keppel DC REIT (AJBU) have models focused entirely on data centres. |
To read more about DCRU and Singapore REITs market, please click hereto read the research note in full on Smartkarma.
For more insights on macro developments and its impact on various asset classes including Singapore listed assets, follow Mint Finance.
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• Smartphones are about to get smarter when they come with Gen AI capabilities. A wave of such new models will hit the market soon. • The wave will turn tsunami-like. Just look at the forecasts in the chart below by International Data Corporation (IDC). It is the premier global market intelligence, data, and events provider for the information technology, telecommunication, and consumer technology markets. • It's not just smartphones but also laptops/PCs where GenAI will become a de facto and must-have capability. Thus, AI PCs are expected to be a significant growth driver in the second half of 2024. Gartner forecasts 54.5 million AI PCs will be shipped by the end of 2024. • DBS Bank's analyst report yesterday states the 4 Hong Kong-listed stock picks that will ride the GenAI wave for smartphones. Read more below... |
By DBS Bank
2Q24 global smartphone shipments increased 6.5%, meeting expectations
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2Q24 shipments in line with market expectations. IDC announced yesterday that global smartphone shipments increased 6.5% y/y to 285.4 million units in 2Q24, vs. 7.8% y/y in 1Q24, in line with market expectations.
The resurgence was primarily driven by
| (1) iPhone's improved performance in China following sales discounts and (2) Xiaomi’s strong performances in emerging markets. |
iPhone shipments resumed growth of 1.5% y/y in 2Q24.
Meanwhile, Xiaomi’s shipments increased 27.4% y/y, with 1H24 shipments already meeting the guidance of an annual increment of 15-20mn units in 2024.
IDC also noted continuous handset ASP growth driven by the ongoing premiumization trend of smartphones.
Continued growth expected in 2H24; Gen AI smartphones to drive market. The continuous growth reflects an ongoing recovery, though demand remains uneven across various markets.
We anticipate the global smartphone market to grow at 7.7% y/y in 2H24, bolstered by the launch of Gen AI smartphones like the iPhone 16, Xiaomi 15, and Mate70.
Market sentiment along the smartphone supply chain is expected to remain positive as global shipments sustain their upward trend.
| We expect ASPs to continue growing in 2H24, supported by Gen AI smartphones and foldable phones. OEMs like Xiaomi are expected to benefit from the premiumization trend, supported by the AI-enhanced Xiaomi 15 launching in October 2024. We see room for an upward revision of its FY24 earnings. iPhone suppliers like AAC Tech, BYDE, and Sunny Optical are set to gain from the specification upgrades of Apple’s first AI phone and further penetrate the iPhone value chain. |
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| • This year marks the 17th year of listing on the Singapore Exchange for Yangzijiang Shipbuilding, one of the largest non-state-owned shipbuilding companies in China. • Its longevity and, more notably, its business performance, are remarkable -- very much unlike the many S-chips that turned out to be weak performers or outright frauds. The chart below captures the recovery of the stock post-pandemic in tandem with its profit growth.  • Yangzijiang (market cap: S$9.5 billion) currently sits on a record orderbook of US$16.1 billion. • The orderbook, whose progression is shown below, is not only massive but reflects a shipbuilder that has made a quantum leap in its order-clinching ability over the past 3 years. It's a bigger beast.  Source: CGS-CIMB, Company, NextInsight• To deal with the orderbook and future growth, Yangzijiang has made moves to acquire land for expanding its shipyard capacity. Read more in excerpts from CGS's latest report below ... |
CGS analysts: Lim Siew Khee & Meghana Kande
■ We estimate YZJSB’s potential new yard investment to increase capacity by c.10%, boosting deliveries by 5-6 vessels p.a. or orders of US$850m-1bn p.a.
■ We expect positive share price movements on this news. Reiterate Add call and TP of S$2.50. Stronger-than-expected orders are key catalysts. |
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| Capacity expansion framework agreement |
● Yangzijiang Shipbuilding (YZJSB) today (15 Jul) entered into a framework agreement with the local government of Jingjiang City, Jiangsu Province, China, for the land use right of c.1,300 mu (or 210 acres) of land at Xinqiao Park of the Jingjiang Economic and Technological Development Zone.
YZJSB said it is currently conducting a feasibility study on the yard project and will provide further updates upon finalisation.
● YZJSB intends to use the yard as a new clean energy ship manufacturing base for the group.
Construction of the yard will cost Rmb3bn and is subject to Chinese government approval, YZJSB said.
If approved, construction of the yard will take two years to complete, or, in our estimate, by 2026F.
The land is located adjacent to YZJSB’s existing Jiangsu Yangzi Xinfu yard, which spans c.2,200 mu (c.360 acres). 
| New yard could deliver 5-6 vessels p.a. or US$850m-1bn in orders |
● Based on the area and investment amount, we estimate the new yard will be about 60% the size of the Xinfu yard, which focuses on the construction of mid-to-large-sized vessels.
Recall that YZJSB had invested Rmb650m for the remaining 20% equity stake in Xinfu yard in 2021, implying a total value of Rmb3.25bn for the entire Xinfu yard.
● According to Clarksons, Xinfu yard delivered 12 containerships in 2023, which we estimate to be about US$1.3bn worth of contracts.
It is also scheduled to deliver 12 vessels in 2025F (7 units of 16k TEU containerships, 3 units of 31.8k DWT bulk carriers, and one LNG carrier). We use Xinfu as a benchmark and expect the new yard to deliver 5-6 vessels of similar size p.a.
Assuming US$170m per vessel (based on YTD average prices for 13k TEU newbuild LNG dual fuel containerships), we estimate the new yard could add about US$850m-1bn in new order wins p.a.
This represents about 15-18% of our 2024F order win target of US$5.5bn.
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Full CGS report here.
DBS has raised its target price to $2.75.
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