Marine & General in good stead to ride on ramp up in O&G activities

Marine & General Bhd may not be high on investors’ list when it comes to oil & gas-related counter. But it looks exciting as the company, which is the largest owner of high-capacity anchor-handling tug & supply (AHTS) vessels, is a beneficiary of the rising upstream drilling activities in Malaysia as Petronas and other oil majors increase their driling activities.

The counter rebounded to touch a 52-high of 41 sen on July 29 from a low of 16 sen last year. In the past year, it has more than doubled its value but closed at 36 sen on July 31 after profit taking activities.

M&G is poised to gain substantially in FY6 as AHTS rates are set to break new highs in on strong demand. The daily charter rates (DCR) for accommodation workboats have already surpassed all-time highs due to the ramp-up in upstream maintenance activities. The DCR for AHTS vessels has also increased substantially to USD1.4/bhp/day in 2023 versus the low of USD0.8/bhp/day observed previously.

Despite the elevated rates, it is still lower than the USD1.8-1.9/bhp/day peak DCR seen back in 2013-2014 when domestic upstream capex peaked. Nevertheless, AHTS DCR is expected to further improve in FY24 and FY25 on the back of continued pick up in drilling activities in Malaysia.

This improvement will be strengthened by the lack of new OSV vessel supply in the market. M&G owns 21 offshore support vessels (OSVs) of which 19 are AHTS vessels with an average age of 13 years.

Of its AHTS fleet, ten vessels possess bollard pull capacity of 10,888 bhp, making M&G the largest owner of high-capacity AHTS locally. Oil producers favour higher capacity AHTS vessels for more drilling activities during an upcycle in upstream capex. As such, M&G is in a strong position to capitalise on the potential ramp-up in upstream activities in Malaysia.

Not only that, the company also owns six small-sized product tankers which generate recurring income. Demand for M&G’s vessels look strong and the company is in a good financial position to take on more jobs.

In fact, its de-gearing exercise will put it in good stead, having reduced its net gearing from 22x to 4.5x. Analysts expect M&G’s earnings to jump by more than 7-fold year-on0year in FY25, driven by a projected 20% increase in average daily charter rates (DCR) to RM55,900, with a fleet utilisation rate of 88%.

In FY26, we anticipate further YoY earnings growth of 85%, underpinned by a 13% increase in average DCR to RM64,200 and slightly higher vessel utilisation of 89%. These factors alone should be more than sufficient to attract investors to participate in the company’s growth, boosting its share price further.